German business confidence falls again

26th July 2006, Comments 0 comments

26 July 2006, MUNICH - German business confidence fell more than expected in July, the closely-watched Ifo survey released Wednesday showed, as concerns set in across Europe about the threat posed to growth by surging oil prices and higher interest rates. The Munich-based Ifo economic institute said its monthly survey of 7,000 executives in Europe's biggest economy slumped to 105.6 points after hitting a 15-year high of 106.8 in June. The index stood at 105.6 points in May. Analysts had predicted the index

26 July 2006

MUNICH - German business confidence fell more than expected in July, the closely-watched Ifo survey released Wednesday showed, as concerns set in across Europe about the threat posed to growth by surging oil prices and higher interest rates.

The Munich-based Ifo economic institute said its monthly survey of 7,000 executives in Europe's biggest economy slumped to 105.6 points after hitting a 15-year high of 106.8 in June. The index stood at 105.6 points in May.

Analysts had predicted the index, which is considered to be one of Europe's key economic indicators, would dip back to 106 points this month with economists seeing the slide in the ifo survey as pointing the way to slowing economic growth next year.

In particular, economists believe that the government's planned increases in consumption tax and healthcare charges as well the global push to higher interest rates and the soaring cost of energy will hit the German economy earlier next year.

"As a result of these factors economic activity should lose momentum in the coming months," said Commerzbank AG economist Matthias Rubisch with the ifo survey of business expectations six months down the track helping to lead the overall index down in July.

The release of the July ifo index also coincides with the build up to next month's widely expected hike in borrowing costs by the European Central Bank. The forecast 25-basis-points increase will be the ECB's fourth since December.

The drop in the ifo survey also followed a fall in business confidence in other parts of Europe with reports released this week showing industry growing more pessimistic in both Belgium and Italy. Belgium's economic links to Europe have helped turn it into a bellwether for the economic mood in the region.

Earlier this month, Germany's ZEW index, which measures investor sentiment plummeted down more than forecast.

Bucking the trend however was France and the Netherlands where the mood among business leaders edged up.

But despite this month's decline in its index, the ifo institute remained relatively optimistic about the prospects for the German economy. "The economic situation is still marked by recovery," it said releasing the survey.

"The export expectations of the industrial firms were still very positive although less so than in the previous months," the institute said.

But it warned that the business climate in Germany's key manufacturing sector had cooled and that the mood in the nation's hard-pressed retailing industry had also slipped.

Moreover, both the ifo index components measuring current business conditions and the outlook for industry six months down the track declined during July.

While the index's component gauging current business conditions slipped from 109.4 to 108.6 points, the survey measuring expectations chalked up a more pronounced fall, dropping to 102.6 in July compared to 104.2 in June.

After posting a growth rate this year of up to two per cent, analysts predict German GDP could come in at closer to one per cent in 2007.

DPA

Subject: German news

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