German business morale weakens further in November – Ifo

The data from Ifo institute showed that German business climate index fell to 85.7 in November from 86.5 in the previous month and missed 86.0 consensus.

Stronger than expected drop in business morale in November further worsens the outlook for German economy, which showed the worst performance among the most developed economies this year.

Poorer assessment of the current situation, with a decline to 84.3 in November from 85.7 in October, was the biggest contributor to fresh fall in business morale, along with Business Expectations which ticked down to 87.2 in November from 87.3 in October.

Weaker than expected numbers in November showed that all sectors except for trade were affected, as retail and wholesale companies have a better assessment of the current situation and are less pessimistic than in previous months.

The increase in trade is interesting given that Germany would be the big loser if the Trump presidency sparked a trade war between the United States and Europe, with Germany’s previously much-envied industrial strength potentially becoming an acute vulnerability.

Even more important is the impact that tax cuts and deregulation in the United States, combined with already low energy prices, would have on German competitiveness, which is definitely a negative one.

Another warning comes from the Ifo index which tends to capture short-term events with a certain delay, suggesting that the risk remains elevated, with the results of the US elections and the collapse of the German government, still to show the full impact on sentiment in coming months.