German business confidence slips

25th May 2004, Comments 0 comments

25 May 2004 , MUNICH - German business confidence slipped in May, as a survey of 7,000 executives released Tuesday showed Europe's biggest economy on track to a moderate recovery despite concerns that soaring oil prices could stifle global economic growth. The Munich-based Ifo economic institute said its headline index for German business sentiment was 96.1 in May compared to 96.3 points in April. The closely watched index stood at 95.4 in March. The fall in May was in line with analysts' forecasts, who ha

25 May 2004

MUNICH - German business confidence slipped in May, as a survey of 7,000 executives released Tuesday showed Europe's biggest economy on track to a moderate recovery despite concerns that soaring oil prices could stifle global economic growth.

The Munich-based Ifo economic institute said its headline index for German business sentiment was 96.1 in May compared to 96.3 points in April. The closely watched index stood at 95.4 in March.

The fall in May was in line with analysts' forecasts, who had predicted that the index, which is one of Europe's key economic indicators, would fall to 96.1 points this month.

But in releasing the survey's latest findings, Ifo president Hans-Werner Sinn said the May report confirmed that Germany was on course to a moderate recovery after three years of stagnation.

"The latest survey results, especially the almost unchanged expectations, point to a continuation of the moderate economic recovery in Germany in the coming months," Sinn said.

Echoing his view of a continuation of Germany's moderate upswing, Elga Bartsch, European economist with the investment house Morgan Stanley, said the May index remain above the indicator's long-term average of 95.0 points.

The dip in the May index was largely a result of German industry leaders growing more pessimistic about current business conditions, while the component of the index measuring future business expectations stabilised following three monthly falls.

While the business expectation index remained unchanged at 97.8 in May, the index measuring current business conditions dropped from 94.9 in April to 94.4 this month.

Sinn also noted that the dip in the business climate indicator was a result of a gloomy mood in eastern Germany with business confidence in the more economically important western half of the nation rising.

More particularly, the survey showed an improvement in the business climate in Germany's crucial manufacturing industry with the assessment of current business conditions by executives in the nation's hard-pressed retail sector worsening during the month. However, their outlook for future business conditions improved.

Official data also released Tuesday confirmed that Germany's economy chalked up a better-than-forecast 0.4 percent quarter-on-quarter in the first three months of the year with a strong performance of the nation's key export machine emerging as the driving force behind growth.

This helped to offset a 0.4 percent drop in domestic demand with sluggish private consumption in the face of high unemployment now acting as a brake on the nation's economic recovery.

Further underscoring the risk to Germany's delicately balanced economic pickup, official data released Tuesday showed the nation's inflation rate surging on the back of stubbornly high energy prices, triggering worries about global interest rate hikes.


Preliminary data prepared by the Federal Statistics Office showed oil prices pushing up annual inflation in Germany to its highest level in more than two years, with an estimated rate in May of 2.1 percent, up from 1.6 percent in April.

Official European data to be released Friday is tipped to show inflation in the eurozone coming in at 2.3 percent in May which is above the European Central Bank's two per cent target.

Up until now, most economists had expected that the ECB would keep rates on hold until the end of the year as it sized up the strength of the 12-member eurozone's economic recovery.

Some analysts also believe that if it had not been for higher oil prices that the ECB would be now preparing to cut rates in a bid to shore up the recovery in the eurozone.

DPA

Subject: German news

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