(Bloomberg) — Business confidence in Germany has worsened for the second month in a row, with analysts getting it wrong and adding to an already difficult start to 2024 for Europe’s biggest economy.
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The IFO Institute's expectation level for January was 83.5, down from 84.2 revised last month. Analysts had expected a slight rise. An index showing the current situation also declined.
“Companies assess the current situation as worse, and the outlook for the coming months has once again become pessimistic,” Ifo Chairman Clemens Fuerst said in a statement. “The German economy is in recession.”
Germany narrowly escaped two consecutive quarters of economic contraction last year, but continues to struggle with weak global demand and the fallout from the energy crisis. The company is banking on a recovery in consumer spending to rebuild its operations, but that has yet to materialize, and private sector activity data released Wednesday showed a bleak picture.
Deutsche Bundesbank expects growth to pick up in 2024, but only by 0.4%.
Wage deals negotiated in the coming months could help determine the extent to which consumer spending recovers. IG Metall, Germany's largest trade union, said on Thursday it plans to enter a “constructive and conflict-proof” round of negotiations in the metal and electrical industry in the second half of the year.
A six-day strike by train drivers is currently paralyzing the country. They rejected Deutsche Bahn's offer to increase wages by up to 13% and the option to reduce working hours to 37 hours a week from 2026.
There is some optimism about Germany's outlook, with investors expecting a tailwind from the European Central Bank's interest rate cuts as early as April. Although authorities in Frankfurt have objected to that timeline, it remains likely that they will ease policy this year, with a possible starting point converging around June.
The ECB is expected to announce its latest decision on borrowing costs later on Thursday, leaving deposit rates unchanged at 4% for the third consecutive meeting.
–With assistance from Joel Rinneby, Kristian Siedenburg, Jana Randow, and Alexander Weber.
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