German Ifo Business Sentiment Strengthens Unexpectedly

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German business confidence improved in December as managers were more satisfied with their current situation and less skeptical about future, survey results released by the Munich-based ifo Institute showed Friday.

The business confidence index rose unexpectedly to 92.1 in December from revised 90.9 in the previous month. The score was forecast to ease to 90.0 from November’s initially estimated value of 90.7.

While the lockdown is hitting certain sectors hard, overall the German economy is showing resilience, Clemens Fuest, ifo President said.

Both current assessment and expectations advanced from November. The current conditions indicator came in at 91.3, up from 90.0 a month ago. Economists had forecast the reading to fall to 89.0.

The expectations index improved to 92.8 in December from 91.8, which was above the expected reading of 92.5.

The increase in business confidence for December supports the assessment that Germany will avoid a contraction in the fourth quarter, Melanie Debono, an economist at Capital Economics, said.

But the new tightening in coronavirus restrictions, which came into effect this week, means that activity will remain subdued at the start of the New Year, before picking up in the second quarter, Debono noted.

The majority of the survey responses were collected before the decision to impose a tougher lockdown. The closure of non-essential shops until at least January 10 will weigh on retail and service sectors.

In manufacturing, business sentiment rose markedly in December. Assessments of the current situation hit its highest level since January. Optimism regarding the coming six months also increased noticeably.

In the service sector, the business climate indicator recovered somewhat. Companies were more satisfied with their current situation and their expectations were also a little less pessimistic.

In trade, the business climate improved and remained unchanged in the construction sector, the survey showed.


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