BERLIN: German business morale fell more than expected in November in further bad news for a country set to be the worst performer among the Group of Seven (G7) rich democracies this year.

The Ifo institute said its business climate index decreased to 85.7 in November from 86.5 in the previous month, a survey showed on Monday. Analysts polled by Reuters had forecast a reading of 86.0. “The German economy is lacking strength,” Ifo president Clemens Fuest said.

The decline in business morale was mainly due to the poorer assessment of the current situation, with a decline to 84.3 in November from 85.7 in October. Expectations also fell, but only slightly to 87.2 in November from 87.3 in the previous month, Ifo said. Robin Winkler, chief economist for Germany at Deutsche Bank Research found it remarkable that expectations remained stable given the political events of the past three weeks. “Either German companies are not yet overly concerned about US trade policy or these concerns are being offset by the prospect of new elections in Germany,” Winkler said. The decline affected all sectors with the exception of trade, as retail and wholesale companies have a better assessment of the current situation and are less pessimistic than in previous months, according to Ifo.

The increase in trade is interesting given that Germany would be the big loser if the Trump presidency sparked a trade war between the United States and Europe, with Germany’s previously much-envied industrial strength potentially becoming an acute vulnerability. Even more important is the impact that tax cuts and deregulation in the United States, combined with already low energy prices, would have on German competitiveness, “which is definitely a negative one,” said Carsten Brzeski, global head of macro at ING.

The Ifo index tends to capture short-term events with a certain delay, Brzeski said. “In this regard, the risk is high that the results of the US elections and the collapse of the German government will still leave their marks on sentiment over the next few months.” “The reading confirms that the German economy remains in the doldrums,” said Franziska Palmas, senior Europe economist at Capital Economics, in reference to the business sentiment figure. Germany’s economic downturn accelerated in November as business activity fell for a fifth month running and at the quickest rate since February, the HCOB German flash composite Purchasing Managers’ Index (PMI) showed on Friday.

Both the Ifo index and the PMI suggest that, after expanding by 0.1 percent in the third quarter, German gross domestic product may contract again in the last quarter of the year, according to Palmas. “The outlook for 2025 is also poor as a loss of competitiveness in industry and adverse demographics are likely to offset any boost from a recovery in real household incomes and monetary easing,” Palmas said. — Reuters