German business sentiment falls further in January, warning about prolonged recession

German business morale extended decline for the second consecutive month in January, as Europe’s largest economy struggles to recover from a recession, which adds to growing fears of prolonged weakness.

German Ifo institute’s business climate index fell to 85.2 in January from 86.3 in December and disappointing expectations for improvement to 86.7.

German gross domestic product contracted by 0.3% in 2023, confirming that the economy is in recession, which is likely to extends into 2024, after the latest weak economic data caused a slight optimism about stronger recovery to fade.

During the 2023, the economy was strongly hit by soaring inflation, high energy prices, weak foreign demand and overall negative picture was worsened by a budget meltdown that prompted deep subsidy cuts, which resulted in the latest massive protests of German farmers.

The latest trade disruptions caused by growing tensions in the Red Sea, bring fresh concerns for Germany’s export industry, while persistent weakness in the property sector also contributes to clouded outlook.

The Ifo institute revised down its growth estimate, expecting the economy rebound by 0.7% in 2024, though many economists are not too optimistic, with prevailing expectations for 0.3% decline in GDP this year.