Ifo business climate for Germany rises considerably in December, domestic demand likely to stay steady

The Ifo business climate for Germany rose considerably in December. The index rose to 96.3 from November’s 95.1, strengthening the hopes of a better economy next year. Today’s rise is mainly linked to more positive business expectations. The assessment of the current situation has rebounded to a lesser extent.

Today’s print shows a brighter scenario than the PMI. Nevertheless, considering the development in recent months, there are some parallels. The Ifo data for the services sector were considerably more positive than those for manufacturing. The corresponding sub-index rose considerably in December to its highest level since the spring, bringing it nearly back up into the sideways range seen since 2015.

Together with the recent slight rises of the services PMI, this indicates that the services sector, which is mainly dependent on domestic demand, is successfully decoupling from the pronounced softness of manufacturing. This is a solid argument against a pronounced recession in Germany, noted Commerzbank in a research report. Meanwhile, there are still no reliable signals for a turnaround in manufacturing. Here, too, Ifo reports a slight rebound in confidence. Nevertheless, the index for this sector has been moving sideways at a low level for many months now, which is also in line with the corresponding PMI.

“The December Ifo gives hope for the coming year, especially as it indicates continued solid domestic demand. However, higher growth rates are not yet on the agenda given that signals of a turnaround for manufacturing are still missing”, added Commerzbank.