Political uncertainty hits German business morale

FRANKFURT, Germany — German business confidence fell more than expected in November, a key survey showed Monday, amid political uncertainty following the collapse of the country's coalition government and Donald Trump's US election win.

The Ifo institute's confidence barometer, based on a survey of around 9,000 companies in Europe's struggling top economy, slipped 0.8 points to 85.7 points.

Analysts surveyed by financial data firm FactSet had forecast a more modest fall, to 86.0.

The survey comes as Germany heads for new polls in February following the collapse of Chancellor Olaf Scholz's coalition, and with businesses facing the threat of higher tariffs on exports to the key US market once Trump returns as president.

Philipp Scheuermeyer, economist at public lender KfW, said it was "no wonder" that the index had fallen.

"Donald Trump's election victory is likely to create new headwinds for the already hard-hit German export industry," he said.

"There is also the threat of a prolonged period until a new government is formed, during which German politics will hardly be able to react, let alone provide any stimulus."

The index had ticked up for the first time in months in October, in a rare piece of good news for the German economy, which has been battling a manufacturing slowdown and weak demand for a prolonged period.

November's fall was driven by a significant drop in businesses' assessment of the current economic environment while their expectations about the months ahead also fell, although less markedly.

Companies in the crucial manufacturing sector were more pessimistic about the months ahead although they viewed their current business situation as slightly better, it said.

The picture in both the service sector and construction industry worsened significantly, according to the survey.

In the area of trade the index ticked up, although Ifo president Clemens Fuest stressed that "sentiment among companies is still a long way off from being positive".

Germany was the only major advanced economy to shrink in 2023 and is on course to contract again this year.

Last week data showed the economy expanded just 0.1 per cent in the third quarter, and only narrowly dodged a recession.