German business confidence stagnates in May: Ifo

21st May 2010, Comments 0 comments

Business confidence in Germany stagnated in May, the closely watched Ifo index showed Friday, disappointing expectations for a stronger performance in Europe's top economy.

The index edged down to 101.5 points from 101.6 in April, an Ifo spokesman said, but otherwise remained at its highest level since May 2008.

Analysts surveyed by Dow Jones Newswires had looked for a small rise to 102 points however but one said the eurozone debt crisis and financial market turmoil appeared to have taken their toll.

Elsewhere in the 16-nation eurozone meanwhile, growth rates showed a "worrying" slowdown in May despite, data and research group Markit said Friday.

Ifo president Hans-Werner Sinn was cautious in his interpretation of the German data, saying in a statement that the business climate was nearly unchanged and that "the economic recovery in Germany is robust."

A breakdown of the survey showed that while the business climate had improved further in the critical manufacturing sector, it was markedly less favourable in the retail and construction sectors.

Although a bitterly cold winter held German growth to a modest 0.2 percent in the first quarter of 2010, the economy is projected to grow by 1.4 percent this year.

The country is slowly recovering from its worst recession in more than six decades, with the economy shrinking by 4.9 percent in 2009.

In March, industrial output and orders both shot up and second-quarter exports are expected to benefit from the euro's fall against other major currencies owing to the eurozone debt and deficit crisis.

But government efforts to get their finances in order could well dampen eurozone economies later this year, economists have warned.

"Today's Ifo drop did not come as a surprise," ING senior economist Carsten Brzeski said.

"It is a correction at a high level, clearly driven by the eurozone's sovereign debt crisis and recent market turmoil."

© 2010 AFP

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