German business confidence experienced a modest improvement in January, reflecting a more optimistic view of the current economic conditions. However, the persistently low level of confidence indicates that the economy remains fragile.
According to the ifo Institute's survey released on Monday, the business climate index increased to 85.1 in January, surpassing economists' expectations, from 84.7 in December. Analysts had anticipated a reading of 84.9.
While businesses felt more positive about the current economic situation, they remained cautious about the future.
The current situation index increased to 86.1 from the previous 85.1, exceeding the forecast of 85.4. Conversely, the expectations index dipped slightly to 84.2 from December's 84.4, although still above the anticipated 84.0. In the manufacturing sector, confidence dwindled further as companies expressed greater skepticism about the upcoming months. Despite this, the current situation was perceived as improved with little change in capacity utilization and a continued decline in incoming orders.
The service sector saw a substantial boost in confidence, with companies reporting a significantly better current situation and more positive expectations.
Trade confidence remained unchanged in January. Traders viewed their present circumstances more favorably, though their future outlook remained slightly more pessimistic.
In the construction sector, business confidence declined again in December, primarily due to bleaker future expectations, despite a modestly better assessment of the current situation.
Economist Franziska Palmas from Capital Economics observed that the persistent negative business sentiment index in January aligns with projections for only a modest GDP growth in Germany this year.
Palmas highlighted that rising real incomes and more relaxed monetary policies are expected to bolster household spending. Nevertheless, with lingering weak sentiment, limited fiscal policy changes expected from the upcoming election, and ongoing struggles in the industrial sector, economic growth is likely to remain muted.
