Germany’s business climate has plunged to its weakest point since May 2020, as firms across key sectors signal deepening pessimism about the year ahead. Structural challenges, weak investment, and prolonged stagnation are weighing heavily on Europe’s largest economy.
The ifo Business Climate Index fell to 84.7 points in December 2024, down from a downwardly revised 85.6 points in November and below expectations of 85.6 points. This marks a notable drop driven by worsening future expectations, even as companies assessed current conditions slightly more positively.
“The decline was due in particular to more pessimistic expectations. By contrast, companies assessed the current situation as better. The weakness of the German economy has become chronic,” said Clemens Fuest, President of the ifo Institute.
The subindex for current business conditions improved marginally to 85.1 points, up from 84.3 points in November. However, the expectations subindex, reflecting sentiment for the months ahead, tumbled to 84.4 points—its lowest since February 2024—well below consensus estimates of 87.5 points.
Sector-specific outlooks painted a consistently bleak picture:
- Construction: While current assessments improved slightly, 51.5% of firms expect worsening conditions in 2025, with fewer than 5% predicting any improvement.
- Retail: 42.1% of retailers foresee further decline, while only 7.9% are optimistic. Half expect no change in conditions.
- Services: Optimism is muted, with 11.9% expecting improvements, 28.2% anticipating decline, and 59.9% seeing stability.
- Manufacturing: 31.8% of firms predict a decline, while only 15.7% foresee improvement, and the majority (52.6%) expect stagnation.
“No sector is really optimistic about 2025. A lot of work awaits the new German government,” noted Klaus Wohlrabe, an ifo expert.
As sectors grapple with chronic economic challenges, the data highlights mounting pressure on policymakers to address Germany’s deep-seated structural issues and faltering investment.
