German Ifo business climate falls surprisingly in January, GDP likely to grow 0.8 pct in 2020

The Ifo business climate for the German economy dropped surprisingly in January. The index fell to 95.9 from December’s 96.3, as compared with consensus expectations of a rise to 97. This was the first fall since August, and disappointing in that expectations for the next six months dropped markedly to 92.9 from 93.9.

However, looking at the January data, the figures are not bad at all. In manufacturing, the business climate rebounded considerably to -1.6 from -5. Even if the business expectations rebounded not as solid as current business assessment, the decisive 8-month average in manufacturing business expectations is rising for the first time in two years. This is also true for the business climate as a whole, noted Commerzbank in a research report. Such upward signals in the past were quite reliable; the likelihood of a false signal is below 10 percent. Therefore, the Ifo business climate affirms the upward signal of the PMI index on Friday.

Meanwhile, the Ifo business climate in services sector dropped to 18.7 from 21.3. Nevertheless, this should not be worrisome as the business climate in this sector has rebounded noticeably since the summer. Therefore, domestic demand continues to underpin the German economy.

The upward signals from the Ifo business climate and the Purchasing Managers’ Index imply that industrial production will reach its lowest point in the spring, said Commerzbank. However, the headwinds for the German economy continue to be solid. Trade uncertainty, for instance, continues to be high.

“For 2020 as a whole, we expect German GDP to grow by 0.8 percent – with certain upside risks. On the one hand, the Federal Statistical Office predicted a moderate increase for Q4 GDP. On the other hand, construction production benefits from the unusually mild winter weather”, added Commerzbank.