German Ifo business climate declines slightly in December

The Ifo business climate came in slightly lower in December against expectations (108.7, down from 109.0). The underlying trend has for months pointed sideways at high levels. But at present, economists would place more trust in order intake, which has been declining since summer, mainly due to slowing demand from emerging markets. German economic growth is all set to decelerate to 1.3% in 2016.

After its surprising rise in November, the Ifo business climate declined slightly in December - from 109.0 to 108.7 (consensus: 109.0). Companies have scaled back their assessment of the current situation to some extent.

The underlying trend of the Ifo business climate has for months pointed sideways at high levels. This is the main reason why economic optimists expect that next year's growth will at least match the pace seen in 2015 (1.7%).

"We remain more conservative. After all, the correlation between the Ifo business climate and economic growth has recently been rather loose and the Ifo index has overstated growth.We therefore consider the official order intake data to be more relevant, and it has been declining since summer. Orders from outside the euro zone have even fallen by around 10% due to slowing demand from emerging markets. This should affect economic growth - after all, 40% of German exports are to emerging markets", says Commerzbank.

In October, industrial production came in below the Q3 levels. For Q4, a moderate growth rate of 0.3%, is expected. This underlying pace is likely to be sustained in the coming quarters. The result would be a growth rate of 1.3% for the whole year 2016.