San Francisco Frontiers - Bleak end to the year as German business morale drops

The Ifo institute's confidence barometer dropped to 87.6 points from 88 points in November, its second straight monthly drop and in line with analyst expectations.

"The year is ending without any sense of optimism," said Ifo president Clemens Fuest.

The German economy is struggling to emerge from a long downturn, hit by a manufacturing slump, increasing competition from China and the US tariff onslaught.

Chancellor Friedrich Merz vowed to kickstart growth but, after an initial burst of optimism, gloom has set in as businesses complain there is little sign of serious reform or a promised public spending blitz.

In the Ifo poll, which surveys about 9,000 businesses every month, sentiment in the crucial manufacturing sector slipped as companies reported worse expectations for the future.

"The number of new orders declined, and companies are planning to scale back production," it said.

Morale also fell in the area of trade, with retailers reporting disappointing Christmas sales, as well as in the service sector.

The survey "suggests that the long-awaited recovery in the German economy still has not materialised, with the fiscal stimulus not yet having a meaningful impact," said Franziska Palmas, senior Europe economist from Capital Economics.

After meagre growth this year, the economy is expected to pick up speed in 2026 on the back of the government spending ramp-up on defence and infrastructure.

But economists are growing more gloomy about the prospects for next year, with leading institutes last week cutting their forecasts to between 0.8 and one percent expansion.

The government is forecasting growth of 1.3 percent in 2026.

C.Lewis--SFF