News Column

German Business Confidence Sags Despite Forecasts

Sept. 24, 2012

German business confidence declined in September for the fifth straight month, defying expectations that it would rebound in the light of tougher action to beat the eurozone debt crisis, a key survey released Monday showed.

The Munich-based Ifo economic institute said its closely-watched business climate index slumped to 101.4 from 102.3 in August.

Ifo surveys 7,000 business executives in industry and trade every month.

The data put a chill on Frankfurt stock prices, sending the 30-share DAX index 0.7 per cent lower to 7,400 around midday.

"The companies surveyed are again less satisfied with their current business situation. They also expressed greater pessimism about the future. The curbing forces on the German economy continue to prevail," said Hans-Werner Sinn, the head of Ifo.

The fall wrong-footed analysts at major banks, who had expected the principal indicator of sentiment in industry to rise slightly, to about 102.5, after a European Central Bank decision this month to buy up government bonds set off a rally in stock prices.

Markets had previously been cheered by upbeat purchasing manager index (PMI) data last week.

"Today's Ifo reading cools down bullish expectations raised by the positive reading of the PMI last week," said the research arm of the bank Barclay's in a spot reaction.

"The rebound that was expected hasn't happened," said Mario Gruppe, an analyst at German bank NordLB-Analyst.

Wolfgang Albrecht of another bank, LBBW, pointed to a range of recent bad news for the eurozone including uncertainty over a Spanish application for a bailout, continuing difficulties in slashing the Greek budget and a Portuguese pullback from sharp wage cuts.

However in a silver lining, Ifo's survey showed retailers and wholesalers reported an improved current business situation.

"In the environment of lacklustre but so far certainly not depressed global growth, the still relatively comfortable situation for domestic consumption remains an important support factor for the German economy," said Alexander Koch of UniCredit Research in Munich.

Germany's electrical engineering industry federation, the ZVEI, meanwhile disclosed record exports in July with a value of 13.2 billion euros (17.1 billion dollars), up 8 per cent year on year. Strong demand from Asia and the Americas drove the sector's sales.

"It wasn't just July but the first seven months as a whole which set new highs and more than made up for a weak spot in the spring," said ZVEI economist Andreas Gontermann.

Separately, the Bundesbank pointed to its own rosy data on the economy from July.

"Together with a generally satisfactory estimate of the situation by industry, it suggests that the German economy will continue to grow, though slowly," Germany's central bank said in its monthly report.

UniCredit disagreed. Koch said, "The PMI orders and the Ifo business expectations, which have been two of the best leading indicators for the German economy in the past, currently suggest a quarterly decline in third-quarter GDP of 0.3 per cent."

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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