German business confidence hits 14-month low in August: Ifo

24th August 2011, Comments 0 comments

German business confidence fell sharply this month, the Ifo economic research institute said on Wednesday as it released the latest in a series of bleak indicators for the eurozone economy.

The monthly Ifo business climate index plunged to 108.7 points from 112.9 points in July, underscoring a sharp slowdown seen also in eurozone consumer confidence on Tuesday.

The result of the latest Ifo poll was well below expectations of a decline to 111 points, according to a survey of economists by Dow Jones Newswires, and was the biggest drop since the index lost 4.9 points in November 2008.

It was also the measure's lowest level since June 2010, when it stood at 106.5 points.

"Recent financial market turmoil and the never-ending eurozone sovereign debt crisis have befogged the outlook for the German economy," ING senior economist Carsten Brzeski commented.

An Ifo statement quoted president Hans-Werner Sinn as saying that "companies have scaled back their expectations of business developments in the coming half year.

"The current business situation, however, continues to be assessed overall as good, although the situation appraisals in recent months were significantly more favourable," he added.

A sub-index that measures companies' assessment of their current situation fell to 118.1 points from 121.4 points in July, while expectations for the six months to come dropped to 100.1 points from 105.0 points.

That was the latter reading's lowest level since October 2009 and was singled out for concern by analysts because it "has the best track record of anticipating" growth, Markit chief economist Chris Williamson said.

The survey of around 7,000 firms showed falls in all of its categories -- manufacturing, retailing and construction.

In retailing, "the optimism of the distributing firms regarding the six-month business outlook has largely dissipated," Ifo said, backing up an EU Commission survey of consumer confidence that was released on Tuesday.

That poll's fall of 5.4 points to minus 16.6 points was a sharper drop than one seen in October 2008 after US investment bank Lehman Brothers collapsed, setting off the global financial crisis and recession.

"The IFO survey data therefore add to a growing picture of rapidly deteriorating business and household confidence in Germany," Williamson said.

"Worries have intensified in recent weeks as economic data have shown growth faltering, financial markets have slumped and policymakers appear unable to resolve the region's financial crisis," he added.

On Tuesday, Markit's own purchasing managers index for eurozone private sector activity showed it stagnating in August while the ZEW index of German investor confidence slumped for the sixth month running to a level last seen in December 2008.

© 2011 AFP

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