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German business morale sinks to start new year

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German business morale sank further in January, a key survey showed Thursday, as the slump in Europe’s largest economy showed few signs of passing quickly.

The Ifo institute’s closely watched confidence barometer, based on a survey of around 9,000 companies, slid to 85.2 points in the first month of the year, after falling to 86.3 points in December.

The New Year drop disappointed analysts surveyed by financial data firm FactSet, who had expected a gentle increase in the indicator.

“The German economy is stuck in recession,” said Ifo president Clemens Fuest, with companies assessing the current situation and the outlook as worse than a month before.

Germany has yet to string together two consecutive quarters of negative growth — the measure for a technical recession — but the economy still only managed to muddle through the last 12 months.

End-of-year figures for 2023 showed the German economy had shrunk by 0.3 percent over the course of the year amid high inflation, rising interest rates and a global slowdown.

“The economic start to the new year was a disappointment,” said Fritzi Koehler-Geib, chief economist at public lender KfW.

The economic outlook, however, still had some glimmer of hope, Koehler-Geib said.

“With inflationary pressure easing and real wages rising, key negative factors should ease over the course of this year and a recovery driven primarily by consumption should set in,” she said.

After a year in which Germany was at the back of the pack among the world’s major advanced economies, 2024 should see the traditional industrial powerhouse eke out “around half a percent” of growth, she predicted.

Morale in manufacturing, the backbone of the German economy, was improved to start the year, although the overall mood “remained pessimistic”, according to Ifo.

On the other side of the ledger, the mood in services as well as trade and construction clouded further.

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Agence France-Presse (AFP) is a French international news agency headquartered in Paris, France. Founded in 1835 as Havas, it is the world's oldest news agency.

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