German business confidence slumps

25th November 2004, Comments 0 comments

25 November 2004 , MUNICH - German business confidence dropped to its lowest level in more than a year in November, a survey of 7,000 executives released on Thursday showed, as industry leaders' concerns deepened about the impact on Europe's biggest economy of high oil prices and the soaring euro. The Munich-based Ifo economic institute said its headline index for German business sentiment dropped to 94.1 points in November from 95.3 points in October. The fall in November was bigger than predicted by anal

25 November 2004

MUNICH - German business confidence dropped to its lowest level in more than a year in November, a survey of 7,000 executives released on Thursday showed, as industry leaders' concerns deepened about the impact on Europe's biggest economy of high oil prices and the soaring euro.

The Munich-based Ifo economic institute said its headline index for German business sentiment dropped to 94.1 points in November from 95.3 points in October.

The fall in November was bigger than predicted by analysts, who had forecast that the index, which is one of Europes key economic indicators, would slide to 94.8 points.

"In addition to Germany's structural problems, which have decoupled the domestic economy from the world economic boom, the high price of oil and the stronger euro have now also had an impact," Ifo President Hans-Werner Sinn said.

His views were echoed by private economists. "The past euro appreciation and the lagged impact of the oil price rise are taking their toll on the economy," said Annemarieke Christian from the investment house Morgan Stanley.

The surging euro, which hit a new high of more than 1.32 dollars in the run-up to the release of the latest Ifo report, has set alarm bells across Germany's business and political establishment about the threat posed to the nation's export machine by the common currency's sharp escalation.

In a speech to parliament Wednesday, German Chancellor Gerhard Schroeder again said he was worried about the euro's rapid rise.

The euro's 10 percent jump against the dollar over the last three months also comes in the wake of higher prices which have already raised the prospect that world economic growth will slip back a gear next year.

Now business leaders are worried that a robust euro could further dampen their chances of foreign orders as global growth slows.

The fall in the Ifo index followed declines in key November economic sentiment surveys for other key eurozone member states - Italy, the Netherlands and Belgium - with most economists now believing that the European Central Bank will keep rates on hold until well into next year.

Indeed, signs have already begun to emerge that Germany's recovery from three years of economic stagnation has lost momentum.

The German economy grew by a meagre 0.1 percent in the third quarter this year, after the nation's exports dropped for the first time in more than 12 months. The poor results set the stage for a weak economic start to 2005.

Moreover, the slowing German growth confirms many industry leaders' worst case scenario of exports declining before the nation's domestic economy has picked up.

Underscoring German industry's concerns about the economic outlook, the Ifo survey showed both the business leaders' assessment of current conditions and expectations also falling by more than forecast.

While the Ifo index measuring the executives' assessment of their current conditions dropped to 93.8 from 94.7, the gauge measuring expectations fell to 94.3 from 95.9.

"In construction the business climate remained unchanged," said Sinn in releasing the November survey. But he said: "In manufacturing, in wholesaling and in retailing the business climate worsened."

But coinciding with the Ifo's release, Germany's hard-pressed retail sector predicted a more prosperous Christmas for its members who believe that extra shopping days and less reluctance on the part of consumers to spend could help to boost sales.

"Retailers believe customers are more willing to spend," said the spokesman for Germany's Retail Federation (HDE) Hubertus Pellengahr, but he added, "we haven't yet turned the corner."

DPA

Subject: German news
 

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