German businesses are ending the year in a more upbeat frame of mind. The Ifo business sentiment index, which surveys 9,000 companies across services, construction, trade, and manufacturing sectors, showed that morale for the month of December 2019 rose to 96.3, the highest it has been since June.
"The German economy is heading into the New Year with more confidence," Ifo President Clemens Fuest said in a statement.
Fuest said that companies, especially in the service sector, are feeling better about their status quo and their prospects for the coming six months.
He cautioned however that industrial companies are still planning more production cuts and currently finding it more difficult to get new credit.
Carsten Brzeski, chief economist at ING Germany, noted that the positive Ifo reading allows some hope for a rebound in Europe’s largest economy next year. A break through in a trade deal between China and the US would also be good news for Germany next year.
He cautioned that “any tangible bottoming out” is still hard to see as the manufacturing sector remains in the doldrums.
“Inventories are still increasing and order books are still thinning out—a combination which does not bode well for industrial production in the near future,” Brzeski said in a note. “Looking ahead, the widening gap between a weak manufacturing sector and solid consumption as well as a strong labour market looks hard to sustain. Something has to give.”
“The economy is slowly working its way out of its lows," Klaus Wohlrabe from the Ifo told Reuters, but he warned that the industrial sector is still in recession and can only be expected to come out of it slowly.