German business sentiment drops in November

German business confidence deteriorated more than expected in November, according to a widely-followed survey released on Monday.

The Ifo business climate index declined to 102.0 from 102.9 the month before, marking its third consecutive drop and missing expectations for a reading of 102.3.

Meanwhile, the current assessment index fell to 105.4 from 106.1, coming in slightly ahead of estimates of 105.3 and the expectations index slipped to 98.7 this month from 99.7 in October, missing expectations for a reading of 99.2.

The sub-index for manufacturing fell to 17.6 from 19.3, while the index for the services sector ticked down to 30.1 from 31.6 and the trade sub-index declined to 9.8 from 10.2 in October. The sub-index for the construction sector came in at 29.7 from 32.3 in October.

Jennifer McKeown, chief European economist at Capital Economics, said: "November’s fall in the Ifo business climate indicator adds to evidence that the German economy is slowing, but suggests that the particular weakness of Q3 will not be repeated at the end of the year.

"On the face of it, the Ifo looks consistent with annual GDP growth of around 2%, which would be much stronger than Q3’s pace of 1.2%. This implies that the underlying slowdown in the economy is nowhere near as sharp as Q3’s 0.2% quarterly fall in GDP would have you believe. Activity was affected by temporary factors. However, the Ifo has been too optimistic recently and the composite PMI points to quarterly gains in GDP of 0.2 to 0.3%, or about 1% on an annual basis.

"Looking ahead, the fall in oil prices looks set to support consumer spending, particularly against a backdrop of low unemployment and rising wage growth. But the improvement will be tempered by a continued slowdown in global demand. We see German GDP rising by 1.8% next year after a 1.5% expansion in 2018."