EUROPEAN ECONOMY: German business climate weakens / Processors’ mood worsens / European manufacturers send mixed messages

— By Eric Culp — 

Headline business confidence in Europe’s largest economy fell for a second straight month in December, with optimism among plastics and rubber converters dropping back to September levels. At the same time, data from the Eurozone offered reasons for hope and concern.

The headline reading from German economic think tank Ifo (Munich; www.ifo.de) resulted in the third decline in four months following drops in November and September. The institute’s business climate index slipped to 87.6 points, the lowest since May, from a downwardly revised 88.0 reading for November.

This month’s slide came due to the fall in the expectations component for the coming six months. It eased to 89.7 points, which was the same number as in September, itself the lowest since March. 

The current conditions measure of the index held at 85.6 points. The results prompted Ifo to say, “The year is ending without any sense of optimism.”

The think tank reported a drop in its index for manufacturing, saying almost all sectors were affected. Additionally, “Retailers were dissatisfied with Christmas sales,” it noted.

Data from Ifo showed a decline in the business climate index for manufacturers of plastics and rubber products following two consecutive improvements. The headline reading for the sector slid to -8.6 points – its weakest since September – from -1.3 in November.

The expectations component for the sector was the worst since April and turned negative for the first time in three months with a decline to -8.8 from 4.6 last month.

The current situation measure also eased, falling to -8.5 from -7.4 in November.

Weaker preliminary purchasing managers’ indices (PMIs) released the day before the Ifo report pointed to ongoing growth concerns in the Eurozone. The readings fell more than economists had expected, with the overall composite measure dropping to a three-month low of 51.9, just inside growth territory above the 50 mark, according to pollster S&P Global.

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It said the manufacturing reading retreated to its worst mark in eight months at 49.2 to push further into contraction territory. Services dropped a point to 52.6, a three-month low.

“Business confidence waned amid much weaker sentiment among service providers, which outweighed an improved outlook for manufacturing,” the pollster noted.

Conversely, the latest Eurozone industrial production data suggested that manufacturing could be on the rebound. The annual reading for October rose to 2.0%. “We expect the recovery in manufacturing to continue in 2026, now that the German government is finally making some progress with the implementation of its higher defence and infrastructure plans,” wrote Peter Vanden Houte, an economist at Dutch bank ING.

Berlin has announced plans to invest up to EUR 1 tn or more in the military and infrastructure in the coming years.