German business leadersgrow pessimistic
26 August 2004, MUNICH - German business confidence dropped in August, a survey of 7,000 executives released Thursday revealed, as concerns grow that high energy costs will slow the pace of recovery in Europe's largest economy. The Munich-based Ifo economic institute said its headline index for German business sentiment fell to 95.3 points in August compared with 95.6 in July. However the fall in the closely watched index was less than what analysts had predicted. The consensus among economists was for the
26 August 2004
MUNICH - German business confidence dropped in August, a survey of 7,000 executives released Thursday revealed, as concerns grow that high energy costs will slow the pace of recovery in Europe's largest economy.
The Munich-based Ifo economic institute said its headline index for German business sentiment fell to 95.3 points in August compared with 95.6 in July.
However the fall in the closely watched index was less than what analysts had predicted. The consensus among economists was for the index to fall to 95.1 points in August.
In releasing the results of the survey, Ifo chief Hans-Werner Sinn warned that the report underscored the fragile nature of the upswing in Germany which began to emerge last year.
"The survey results indicate that the economic recovery is still not on solid ground," said Sinn with a rise in the executives' assessment of current business conditions more than offset by a fall in future expectations.
Indeed, while the Ifo index gauging executives' assessment of current business conditions rose more than expected to 94.7 from 94.1, the measure of future expectations fell more than expected to 96.0 from 97.1.
Considered to be one of Europe's most important economic indicators, the release of the August Ifo report came in the wake of deepening concern about the fitful performance of global stock markets as well as worries about the economic fallout from this year's 50 percent leap in oil prices.
Despite an improvement in the climate in Germany's recession-hit construction industry, the Ifo report showed that confidence in the nation's wholesaling, retailing and manufacturing sectors had deteriorated.
The publication of the Ifo survey followed the release earlier this week of a report showing business confidence in Belgium had also fallen by a bigger-than-forecast amount.
Economists also see the Belgian leading indicators as a major gauge of the economic climate in the 12-member eurozone because the country has strong trading links with the currency bloc's other member states.
The Ifo's fall in August also comes in the wake of the release this month of a key German investor confidence survey which dropped in August after chalking up two consecutive monthly rises.
Evidence of economic impact of high energy costs has started to emerge with inflation in Germany rising to a higher-than-forecast twoper cent in August, the Federal Statistics Office said Tuesday. It was the fifth monthly increase in German inflation, which stood at 1.8 percent in July.
Moreover, signs that economic growth may have already started to plateau out in the world's three biggest economies the US, the eurozone and Japan - has triggered talk that the global economy has hit a soft spot.
For the time being, however, slower growth does not appear to have impacted on Germany's export machine, which has been the key driving force behind helping to haul the nation out of three years of economic stagnation. The Ifo report showed an improvement in German business leaders' expectations of future export trends.
Nevertheless, after the German economy expanded by 0.5 percent quarter-on-quarter during the third months to the end of June, the latest Ifo survey is also likely to confirm many economists' forecasts that growth in Germany will start to ease up in the coming months.
"Overall, the data underline our call for a slight moderation in GDP growth during the third quarter," said Elga Bartsch, European economist with Morgan Stanley.
Subject: German news