German business confidence drops

Confidence in Europe's biggest economy dropped unexpectedly among German business leaders in December, a closely watched survey showed on Thursday, as global uncertainties continue to cloud the country's economic outlook.

The Ifo institute's business climate index slipped slightly to 108.7 points in the last month of the year, down from 109.0 in November. The pessimism surprised economists, who had widely predicted sentiment to remain unchanged.

The index takes the temperature on some 7,000 German executives' assessment of the current business environment and the outlook for the next six months.

Firms were also marginally less optimistic about their current situation, with that sub-index dipping to 112.8 points compared to 113.4 the month before. However, their expectations of the months to come remained stable at 104.7 points.

Knock-on effects

The growing skepticism comes as some of Germany's key trading partners continue to experience economic turbulence, with China, the world's second-largest economy, fighting to reboot sluggish growth, while Brazil and Russia are both struggling to claw their way out of a deepening recession.

As a result, the German government in October lowered its economic growth forecast for 2015 to 1.7 percent from its previous projection of 1.8 percent. It did, however, leave its outlook for next year unchanged.

Despite the lower-than-expected Ifo data, Thomas Gitzel of VP Bank said there was no reason to despair, pointing to an increasingly strong US economy and Beijing's aggressive stimulus measures.

"We shouldn't read too much into the fall of the Ifo business climate index," said the chief economist. "Let's stick with the facts: The Chinese government is feeling generous, and the US economy is robust. As long as the two global heavyweights are doing well, Germany will be doing well."

Gitzel also cited the refugee crisis as another boon to the nation's economy: "The German construction industry should be jumping for joy. Their order books have got to be brimming with contracts to build accommodations for refugees."

Taken together, he said, these developments were sure to keep the German economy throbbing.

Ifo president Hans-Werner Sinn agreed: "Assessments of the current business situation declined, but optimism about future business developments remained unchanged."

pad/hg (AP, AFP, dpa)