German national flags fly above the Reichstag building in Berlin, Germany. (Photographer: Chris Ratcliffe/Bloomberg)

German Business Confidence Worsens, Putting Rebound in Doubt

(Bloomberg) -- German business sentiment deteriorated further to its lowest level in more than two years as trade tensions and the rising risk of a no-deal Brexit threaten to hamper a meaningful economic rebound from a summer lull.

The Ifo Institute’s gauge of corporate confidence in Europe’s largest economy fell to 101.0 in December from 102.0 in November. The fourth straight decline will add to concerns about economic prospects in Germany and the 19-nation euro area after the European Central Bank decided to rein in stimulus.

German Business Confidence Worsens, Putting Rebound in Doubt

Key Insights

  • The report suggests Germany may have to overcome bigger hurdles than new emissions-testing rules, which hit the auto industry in the third quarter and led to a contraction in economic output.
  • Gauges for current conditions and expectations both decreased
  • “Across the board we have a less optimistic scenario here,” Ifo President Clemens Fuest said in a Bloomberg TV interview. “We’re not seeing a downturn here, but certainly a cooling of the economy.”
  • Worsening confidence will spark speculation whether the ECB was right to cap quantitative easing at 2.6 trillion euros ($3 trillion). While policy makers acknowledged last week that risks to the euro-area economy are rising, President Mario Draghi also said domestic drivers of the expansion remain in place.
  • According to a survey of purchasing managers, Germany’s private sector remained stuck in a phase of low growth in December. Order intake nearly stalled and sentiment softened.

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  • Germany’s Bundesbank expressed confidence on Friday that the economy will quickly overcome its latest slowdown, even though it cautioned that growing protectionism and a disorderly Brexit pose threats to the outlook.
  • Weaker growth in China, the world’s second-largest economy, will also weigh on prospects for Germany and the euro area. President Xi Jinping fueled a stock-market rout on Tuesday when he signaled in a much-awaited speech that no fresh stimulus is in the pipeline. Benchmark indexes across Asia and Europe retreated.

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