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Business climate, Ifo, September,

September 25, 2017

In a foreboding of a tricky situation to form a new German government, the mood of business leaders here turned sour in September, causing the closely-watched Ifo index to slump despite ongoing strong fundamentals.

Deutschland Geschäftsklima United Caps Produktionshalle in Schwerin
Image: picture-alliance/dpa/J. Büttner

Confidence among German businesses eroded slightly in September, according to the Ifo institute's regular survey published Monday, reflecting uncertainty ahead of a general election on Sunday that, indeed, has left Chancellor Angela Merkel facing tricky coalition talks.

Read more: Uncharted political waters for Angela Merkel

The Munich-based think tank's closely-watched business confidence index fell to 115.2 points - an 0.7-point drop compared with August.

Ifo chief Clemens Fuest said in a statement that companies had been less satisfied with both their current business situation and their short-term outlook. "Germany's economy nevertheless goes into the new legislative period with a strong tailwind," he added.

Confidence among businesses, consumers and investors has been high over the summer - a reflection of strong economic growth in the first six months of the year and subsiding of fears about the strong showing of populist parties in a number of European elections recently.

But in September, moods began to sour in both the manufacturing and wholesale industries. As a result, the sub-index for manufacturing "declined markedly," Ifo said, while the wholesale business climate "cooled down somewhat."

By contrast, retailers' outlook improved and confidence among construction companies hit a new record, according to the survey.

The September Ifo reading seems to suggest that the pace of German economic growth might not accelerate beyond the rates of 0.7 percent in the first quarter of 2017 and 0.6 percent between April and June.

Looking ahead, Ifo economists wouldn't rule out a further decline in their business confidence index in October. Ifo expert Klaus Wohlrabe said a coalition government made up of Merkel's CDU/CSU party alliance on the one hand, and the environmentalist Greens and the pro-business Free Democrats on the other would be difficult to form. "There is still the possibility of new elections looming, which we expect to show in the October index reading," he told the news agency Reuters.

uhe/aos (Reuters, AFP)