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Ifo: German business sentiment 'noticeably' improves ahead of Christmas

Germany's business sentiment "noticeably" improved ahead of Christmas, with companies less pessimistic about the outlook for the manufacturing sector, according to a survey by the ifo Institute.

The seasonally adjusted ifo business climate index rose to 96.3 points in December, surpassing the Econoday consensus estimate of 95.5 points and the prior month's upwardly revised reading of 95.1 points.

The current business situation index advanced to 98.8 from an upwardly revised 98.0, while the index assessing business expectations rose to 93.8 from 92.3.

Business climate in the manufacturing sector improved, with the relevant index coming in at negative 5.0 from negative 5.8 in November. However, companies' assessment of the current situation slightly worsened as forecasts for production cutbacks remained unchanged. Sentiment in the service sector improved, while that in trade and construction weakened.

Meanwhile, traders' expectations for the coming months deteriorated. The German economy is particularly vulnerable to a global trade downturn due to its manufacturing and export-oriented economy.

According to a previous survey by research institute ZEW, Germany's economic outlook continued to improve month over month in December amid an expanding foreign trade surplus and a stable labor market.

German central bank Deutsche Bundesbank on Dec. 13 trimmed its 2019 growth forecast while slashing the forecast for 2020 amid weaker domestic demand caused by slower growth in employment and households' real disposable income.

S&P Global Ratings sees German GDP growth remaining lackluster at 0.5% in 2019 and 2020 before accelerating to 1.0% in 2021.

The country logged a GDP growth rate of 0.1% in the three months to September, narrowly avoiding a technical recession after its second-quarter GDP contracted 0.2% in quarterly terms. A technical recession is defined as two consecutive quarters of economic contraction.

Germany continued to weigh on overall activity in the eurozone in December as the country's flash manufacturing Purchasing Managers' Index contracted further with a reading of 43.4, compared with 44.1 in November.

In October, Germany, once again, recorded the largest year-over-year decline in industrial production compared to other member states at 6.3%.