German companies unexpectedly became more pessimistic at the start of the year, adding to doubts before a snap general election taking place next month that the country can quickly return to growth.
An expectations index by the Ifo Institute for Economic Research fell to 84.2 this month from 84.4 the previous month.
Economists had predicted a minor uptick. A measure of current conditions improved, thanks in particular to a stronger current performance by services.
Photo: AFP
“Expectations deteriorated again,” Ifo president Clemens Fuest said yesterday in a statement. “Companies continue to be pessimistic.”
Germany just endured a second straight year of contraction, weighed down primarily by its struggling manufacturing sector.
Soft foreign demand and high borrowing costs have contributed to the weakness, but long-standing problems like the aging workforce and excessive dependence on China are increasingly coming to the fore.
They have become prominent topics of debate before the Feb. 23 federal election that would probably see German Chancellor Olaf Scholz ousted by Friedrich Merz, who leads the conservative CDU/CSU bloc.
Whether to revisit strict limits on public borrowing would be one of the first questions any new government would face.
“The top priority is to come up with an economic reform program that addresses some structural issues — energy prices, high taxes, regulation, bureaucracy,” Fuest said. “This is needed more than short-term stimulus.”
Business surveys by S&P Global showed the gloom in Europe’s biggest economy abating somewhat this month, with an index of private-sector activity climbing just above the threshold indicating expansion.
The Bundesbank and other forecasters still only expect muted growth this year, with US President Donald Trump’s threat to impose tariffs presenting a major risk to the outlook.
The European Central Bank is about to lend a helping hand, as it is widely expected to cut interest rates for the fourth straight time on Thursday.
Further reductions are anticipated this year, at least until borrowing costs stop hampering economic activity.
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