German IFO business climate brings bad news for the German economy in January

IFO Institute for Economic Research announced its German IFO business climate report for January on Monday. Printing worse than expected, the economic data stirred a downward movement in the European currency.

As per Monday’s report, German business morale noted a sharp decline in January. The prospect of a recession was the talk of the financial markets in Germany in 2019. While the largest European Economy managed to sidestep the threat last year, the results of the survey announced earlier today suggest that the German economy hasn’t started the new year on the right foot.

German IFO Business Climate Drops To 95.9 In January

In terms of figures, the German IFO business climate was posted at 95.9 in January. In December, the reading was recorded at a higher 96.3, following which, analysts had anticipated further improvement to 97.1 in January. The negative outlook weighed on EUR/USD in the forex market, pushing it further down as it registered a new low around 1.10 level.

Commenting on Monday’s report, Clemens Fuest, the President of IFO stated that the German economy is hinting at a cautious mood at the start of the new year. Fuest also remarked that despite a marginal improvement in businesses’ evaluation of the current situation, their outlook remained widely pessimistic in January.

According to today’s economic data, the German service sector was unable to sustain the business confidence that dropped sharply in January. The manufacturing sector, however, gave signals of minor recovery this month. Economist Klaus Wohlrabe of IFO also commented on the data and highlighted that the past three months have helped dilute business uncertainty in Germany, thanks to the remarkable progress on U.S – China trade front. The outlook, he added, also improved with the Brexit driven uncertainty slowly starting to fade.  As per Wohlrabe, the Iran conflict didn’t contribute much to directing the survey results on Monday.

German Business Morale Offsets The PMIs Driven Optimism Of The Last Week

German PMIs for manufacturing and service sector last week had suggested that the German economy is quickly catching pace. Monday’s data, however, served to offset the last week’s optimism hinting that the economy is still under pressure.

In terms of annual growth, the German economy printed 0.6% in 2019 that was reported to be the weakest for the country since 2013. Since the working days are expected to be unusually high in 2020, the government is eyeing a 1% annual growth target for the German economy this year. The updated forecast for growth will be released by the government on Wednesday. According to Handelsblatt, the forecast is expected to be marginally increased to 1.1% to 1.2% in 2020.