German business confidence sinks again in April

25th April 2005, Comments 0 comments

25 April 2005, MUNICH - German business confidence fell for the third consecutive month in April, a survey of 7,000 executives released on Monday showed, underscoring worries that high oil prices are hitting economic growth in Europe's biggest economy.

25 April 2005

MUNICH  - German business confidence fell for the third consecutive month in April, a survey of 7,000 executives released on Monday showed, underscoring worries that high oil prices are hitting economic growth in Europe's biggest economy.

The Munich-based Ifo economic institute said its headline index for German business sentiment edged down to 93.3 points in April from 94.0 points in March.

This took the closely watched index to its lowest point in 19 months.

The decline was marginally more than the drop to 93.6 that economists had predicted for this month.

"This is an indication that economic growth will continue to be weak in the coming months," said Ifo President Hans-Werner Sinn.

"The business climate worsened further in manufacturing and in wholesaling," he added.

The price of a barrel of Brent crude surged to a record USD 57.65 (EUR 44.47) earlier this month. In view of the Ifo index's decline, the European Central Bank is expected to keep its benchmark refinancing rate at the historic low of 2 percent until later in the year.

Analysts normally see three consecutive monthly falls in the closely watched index as a signal for a downturn in the German economy, already struggling to grow again after an unexpected weak start to the year.

Many economists expect German economic growth to fall short of 1 percent this year, with consumer demand dampened by record high unemployment.

In addition, slowdown in global growth could hit German exports, which have been the key driving force behind the country's economic expansion, analysts say.

However, economists have so far ruled out that Germany could slump into recession.

"While the Ifo business climate underlines that the second quarter will be disappointing, the data available so far hints at neither a recession nor a downturn," said Elga Bartsch, senior economist with the US investment house Morgan Stanley.

The release of the Ifo index comes ahead of Tuesday's scheduled publication of the latest report by Germany's six leading economic institutes.

Analysts expect the institute's 2005 growth forecasts to be downgraded from their current prediction of 1.5 percent.

This is likely to pave the way for Chancellor Gerhard Schroeder's Social Democrat-led government to revise downwards its original forecast of 1.6 percent growth for the year later this week.

Responding to the latest Ifo survey, a spokeswoman for Germany's Labour and Economics Ministry insisted that the nation's economy was improving.

"We don't see a trend or a change in trend," she said, pointing to surveys highlighting the positive outlook for both the export sector and retail trading.

In his comments on the latest survey, Sinn said the mood in the hard-pressed retail and construction industries had improved over the past month.

Nevertheless, an Ifo index measuring current business conditions dropped to 93.1 from 93.3, while the component gauging expectations for the coming six months dropped to 93.6 from 94.6.

As a prelude to the release of the Ifo report, another key indicator released last week, the ZEW index showed investor confidence in Germany falling for the first time in six months in April.

The foreign exchange markets responded to the drop in the Ifo by marking down the euro, which fell to USD 1.3025 following the release of the index, from USD 1.3064 in late trading on Friday.

DPA

Subject: German news

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