Strong German business morale signals modest growth in fourth quarter: Ifo

[December 18, 2019]  By Michael Nienaber and Rene Wagner

BERLIN (Reuters) - German business morale rose more than expected in December to hit a six-month high in a survey released on Wednesday, suggesting that Europe's largest economy picked up steam in the fourth quarter despite a persistent manufacturing crisis.

The Ifo institute' business climate index rose to 96.3 in December from an upwardly revised 95.1 in November. The December reading was the highest since June and beat a Reuters consensus forecast of 95.5.

"The German economy is heading into the New Year with more confidence," Ifo President Clemens Fuest said in a statement, adding that companies' assessment of their current business conditions and their outlook for the coming six months had both improved.

The figures suggest that the German economy grew by 0.2% in the fourth quarter, Ifo economist Klaus Wohlrabe said. But the industrial sector nonetheless remained in recession and would recover only slowly, he added.

The German economy has been going through a soft patch as its export-oriented manufacturers struggle with trade disputes, problems in the car industry and uncertainties over Britain's planned departure from the European Union.

The economy shrank by 0.2% in the second quarter and expanded by just 0.1% in the third quarter.

The government has lowered its forecast for economic growth in 2020 to 1.0% from 1.5%, and predicts growth of just 0.5% for this year.
 

The skyline with its banking district is photographed in Frankfurt, Germany, August 13, 2019. REUTERS/Kai Pfaffenbach

Manufacturing companies were more optimistic about their business outlook, though their assessment of the current situation worsened a little in December, Ifo said.

German exporters welcomed signs that the trade conflict between the United States and China was easing, while Britain's election result increased clarity about Brexit, Wohlrabe said.

But KfW economist Klaus Borger cautioned that a recent de-escalation in the US-China trade dispute did not mean the end of their broader conflict, and that the risk of a hard Brexit had for now only been postponed to the end of 2020:

"Even if the very hard economic shocks have been fended off at the last minute, the road to a real upswing is still long."

The closely watched Ifo business climate index is based on surveys of around 9,000 firms in the manufacturing, service, trade and construction sectors.

(Reporting by Michael Nienaber and Rene Wagner; Editing by Michelle Martin and Kevin Liffey)

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