German business sentiment deteriorates further in January - Ifo

German business sentiment deteriorated further in January, according to a survey released on Thursday by the Ifo Institute.

The business climate index fell to 85.2 from 86.3 in December, coming in well below consensus expectations of 86.7.

The current situation index ticked down to 87.0 in January from 88.5 a month earlier, while the expectations index declined to 83.5 from 84.2.

The manufacturing gauge improved to -16.0 from -17.4, while the service sector index slumped to -4.9 from -1.7.

The index for trade came in at -29.7 from -26.7, while the construction gauge printed at -35.9 in January versus -33.5 in December.

Ifo Institute president Clemens Fuest said: "The German economy is stuck in recession."

Andrew Kenningham, chief Europe economist at Capital Economics, said: "The fall in the Ifo Business Climate Index in January suggests that Germany started the year as it ended 2023 - in recessionary conditions. We think the economy will contract again in Q1 and forecast zero GDP growth for the year as a whole."

Carsten Brzeski, global head of macro at ING, said: "It sometimes feels as someone in Germany must have smashed a mirror, causing seven years of bad luck. As if the last four years of pandemic, war in Ukraine, supply chain frictions, energy crisis and structural shortcomings weren’t enough, 2024 has not started any better. On the contrary, the new year brought new problems for the German economy: there are the government’s austerity measures but also ongoing strikes by train drivers and supply chain disruptions as a result of the military conflict in the Red Sea. In fact, another contraction of the German economy in the first quarter of the year looks even more likely.

"Looking beyond the near term, we expect the current state of stagnation and shallow recession to continue. The risk that 2024 will be another year of recession is high. We expect the German economy to shrink by 0.3% YoY this year. It would be the first time since the early 2000s that Germany has gone through a two-year recession, even though it could be a shallow one."