- Ifo index remains at 87.6, below forecast of 88.2
- Reading reflects uncertainty due to geopolitical tensions and tariff threats
- Economy expected to recover slowly despite fiscal measures
BERLIN, Jan 26 (Reuters) - German business morale was unchanged in January from the previous month, falling short of analysts' expectations for a modest improvement, a survey showed on Monday.
The Ifo Institute said its business climate index held steady at 87.6, the same reading as in December. Analysts polled by Reuters had forecast a slight increase to 88.2.
"The German economy is starting the new year without momentum," said Ifo's President Clemens Fuest.
The reading should be taken with a pinch of salt, as it is unclear whether most survey respondents submitted their answers before or after U.S. President Donald Trump's decision not to impose additional tariffs on several European countries, said Carsten Brzeski, global head of macro at ING.
"The unchanged Ifo index reflects the uncertainty that has hit the German economy again on the back of geopolitical tensions and tariff threats," Brzeski said.
Assessments of the current situation were revised marginally higher, with the indicator inching up to 85.7 in January from 85.6 a month earlier.
Germany's parliament last year approved plans for a massive spending surge, including a 500-billion euro ($593 billion)special fund for infrastructure and plans to largely remove defence investment from the rules that cap borrowing.
"Measured against the immense debt plans of politicians, this is a disappointment," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe, noting that sentiment has not yet benefited from the fiscal package.
ECONOMY TO RECOVER 'ONLY HESITANTLY'
Expectations clouded over slightly, falling to 89.5 from 89.7 in the previous month.
"The weaker-than-expected German Ifo in January pours some cold water on expectations that the German economy might be finally turning the corner," said Franziska Palmas, senior Europe economist at Capital Economics.
Following two years of contraction and only modest growth of 0.2% in 2025, growth should pick up this year as Chancellor Friedrich Merz' fiscal push gathers pace.
However, Palmas said the recovery will be slower than most anticipate, forecasting growth of 0.8%.
Many companies are disappointed by the lack of broad-based reforms, said Joerg Kraemer, chief economist at Commerzbank.
"The German government's fiscal package is therefore not falling on fertile ground," Kraemer said. "The economy is likely to recover only hesitantly this year."
Sectoral data showed the index rose significantly in manufacturing, retail and construction, while the business climate in services deteriorated.
($1 = 0.8429 euros)
Reporting by Maria Martinez, Miranda Murray and Klaus Lauer, Editing by Friederike Heine, Linda Pasquini and Ros Russell
Source: Reuters