Clouds over German economy as biz confidence falls to 11-month low

Frankfurt: The outlook for the German economy, Europe's biggest, clouded over significantly in January as business confidence fell to its lowest level in 11 months, the Ifo economic institute said Monday.

The Ifo institute's closely-watched business climate index fell by a steeper-than-expected 1.3 points to 107.3 points in January, the lowest level since February 2015, Ifo said in a statement.

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months.

The sub-index measuring current business slipped slightly by 0.3 point to 112.5 points, while the outlook sub-index slumped by 2.2 points to 102.4 points, the institute said.

"Sentiment among German businesses weakened at the beginning of the year," said Ifo chief Hans-Werner Sinn.

"Assessments of the current business situation were scaled back slightly, but remained very good. Business expectations, by contrast, clouded over significantly," Sinn said, calling the survey "an unpleasant surprise for the German economy".

Analysts had been pencilling in only a modest decline this month to around 108.2 points.

"It looks as global events have finally reached German companies' boardrooms." said ING DiBa economist Carsten Brzeski.

"Business expectations in particular have taken a hit from recent market turmoil and probably renewed concerns about a slowing of the Chinese economy," the expert said.

"However, the only marginal drop of the current assessment component indicates that the positive growth momentum is currently still there," he added.

"Therefore, there is no need to get overly concerned about German growth, yet."

Capital Economics economist Jonathan Loynes was more sceptical.

The Ifo survey "has brought the strongest signal yet that the recent global economic concerns and associated final market gyrations have started to hit the eurozone's biggest economy," he said.

"Admittedly, the current conditions index fell by less, suggesting that, for now at least, actual growth in the economy remains reasonably solid," Loynes said.

"Nonetheless, at these levels the Ifo index ... supports our expectation that growth will slow this year rather than accelerate as the consensus expects. And further weakness in the surveys over coming months will clearly intensify the downside risks," Loynes warned.

Natixis economist Johannes Gareis disagreed.

"Overall, our scenario for the German economy remains unchanged. German households are benefitting from a very robust labour market, low inflation and low interest rates," he argued.

"However, weak external demand, especially from China and other emerging markets, is leaving its mark on German exporters and manufacturers. Overall, relevant indicators are still consistent with a solid growth performance of the German economy," Gareis insisted.