By Xavier Fontdegloria
Business confidence in Germany improved in January to the highest level since June, adding to signs of resilient activity at the start of the year, as optimism returns amid easing concerns about a looming recession.
The Ifo business climate index rose to 90.2 in January from 88.6 in December, posting a fourth consecutive monthly improvement, data from the Ifo Institute showed on Wednesday. The increase is broadly in line with the expectations of economists polled by The Wall Street Journal.
January data showed that business confidence continued to recover from September’s low. However, sentiment remains depressed compared to the situation before the war in Ukraine, when the index was 98.8.
“Sentiment in the German economy has brightened,” said Ifo president Clemens Fuest. “The German economy is starting the year with more confidence”.
The recent drop in natural gas prices, the implementation of the government’s cap on the price of energy for firms and China’s rapid reopening are likely to have lifted sentiment.
Overall sentiment improved due to significantly less pessimistic views on the near-term outlook, with the gauge of expectations rising to 86.4 in January from 83.2 in December. However, the index assessing the current situation fell slightly to 94.1 from 94.4.
The Ifo index is based on a survey of around 9,000 companies in manufacturing, services, trade and construction.
Business sentiment improved across all sectors, but growth was particularly sharp for manufacturing and trading firms. Manufacturers said their current situation improved, while expectations were also brighter amid still high order volumes and increased production, the Ifo Institute said.
Service providers and firms in the construction sector were also less pessimistic compared to a month ago, but their assessment of current business conditions worsened, the report said.
Write Xavier Fontdegloria at xavier.fontdegloria@wsj.com
