German business morale deteriorated unexpectedly in January as the outlook darkened, a survey showed on Monday, suggesting that Europe’s largest economy got off to a slow start in 2020 after narrowly avoiding a recession last year.
The Ifo institute said its business climate index fell to 95.9 from 96.3 in December. The January reading confounded a Reuters consensus forecast for a rise to 97.0.
“The German economy is starting the year in a cautious mood”, Ifo President Clemens Fuest said, adding that companies had become more pessimistic regarding their outlook while their assessment of the current situation had improved slightly.
Business confidence in the service sector fell noticeably but the struggling manufacturing sector showed signs of a recovery, Fuest said.
Ifo economist Klaus Wohlrabe said business uncertainty had decreased over the past 3 months, helped by Brexit clarity and the settlement in the U.S.-Sino trade conflict. He added that the Iran conflict did not play a big role in the survey.
The Ifo figures contrasted with a survey among purchasing managers published last week that showed Germany’s private sector gained momentum in January as growth in services activity picked up and the pullback in manufacturing eased.
The German economy expanded by 0.6% in 2019, its weakest growth since 2013. The government expects 1.0% growth in 2020, helped by an exceptionally high number of working days. Adjusted for calendar effects, Berlin predicts 0.6% growth this year.
The government is due to present an updated growth forecast on Wednesday. Business daily Handelsblatt reported on Thursday it will slightly raise its 2020 forecast to 1.1% or 1.2%.