The mood in the German economy has deteriorated again. In December, the Ifo business climate fell by 0.4 points to 87.6 points, according to the Munich Research Institute in Munich. Economists, however, had expected a slight increase in the most important German economic barometer to 88.2 points. “Companies are more pessimistic about the first half of 2026,” commented Ifo President Clemens Fuest. “The year ends without a sense of optimism.”
While the indicator for the current business situation remained unchanged, companies’ expectations deteriorated noticeably. The Ifo Institute surveys 9,000 companies every month.
“The Ifo business climate has fallen for the second month in a row and is now slightly below the peak in August,” wrote Commerzbank chief economist Jörg Krämer. “Apparently the mood of companies is suffering from the fact that, contrary to what the government announced, there were no broad economic policy reforms in the autumn.”
Industry wants to reduce production
According to the information in the crisis-hit German industry, the Ifo index fell. “Hardly any industry is exempt from this.” The number of new orders has fallen and companies are planning to reduce production.
In the service sector, the business climate has fallen into negative territory. “A positive exception is the catering industry, which reported a very strong December,” wrote the Ifo.
While the index in the construction industry remained at a low level, the business climate in retail deteriorated. Retailers are dissatisfied with the Christmas business.
Michael Herzum, head of economics at fund provider Union Investment, attributes the lower Ifo index to disappointed expectations. The announcement effect of the government’s billion-dollar packages for infrastructure, for example, has now evaporated. But the federal government’s special fund is now there and the funds can be accessed. “It shouldn’t be long before the first excavators roll out for the infrastructure projects and the government’s investments reach the companies.”