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Survey: German business confidence falls unexpectedly in January

Survey: German business confidence falls unexpectedly in January

German business confidence slipped unexpectedly in January, a widely watched survey showed Thursday, while another poll forecast a drop in the consumer climate ahead.
The Munich-based Ifo's business climate index declined to 107.9 in January from 108.7 in December. Economists polled by Dow Jones Newswires had expected a slight rise to 108.8.
Ifo President Hans-Werner Sinn said the drop is likely because of Germany's VAT hike that went into effect Jan. 1, raising the tax from 16 percent to 19 percent.
"The surveyed firms still reported a very positive current business situation although giving not quite so favorable assessments as in the previous month," Sinn said in a statement. "This is probably in part the result of the increase in the VAT."
Meanwhile, the GfK research group said its forward-looking consumer climate indicator fell sharply from 8.7 points in January to 4.8 for February _ also because of the tax increase.
"The downturn in the consumer climate which had been forecast set in at the beginning of the new year," the group said in a statement.
"The shock of the VAT increase and subsequent sudden halt of purchases brought forward to beat the tax have drastically curbed the propensity to buy."
Still, it added that consumer sentiment regarding income expectations is less pessimistic than in the previous month, indicating that the sharp decline in the propensity to buy is likely a "temporary blip."
Its section of the index measuring the outlook for the German economy, which hit a six-year high in December at 35.7, rose further to 37.5 points.
Income expectations came at minus 5.1 points, improving month-on-month by 11 points and "more than offsetting the decline of over 10 points in December 2006."
Still, the group said, the indicator is down 10 points on the prior year.
The GfK group's survey is based on around 2,000 interviews with consumers each month, conducted on behalf of the European Commission.
The Ifo survey registered a drop in current business confidence from 115.3 to 112.8 in January.
Business expectations, however, continued to rise _ going from 102.5 in December to 103.2 in January _ indicating that the economic upturn from 2006 will continue.
"This indicates that after a brief pause the cyclical recovery will continue in the coming months," Sinn said.
The Ifo Business Climate Index is based on around 7,000 monthly survey responses of firms in manufacturing, wholesaling and retailing.


Updated : 2021-05-14 19:59 GMT+08:00