Oil prices hit German business confidence

24th May 2004, Comments 0 comments

24 May 2004 BERLIN - Growing worries among European and German industry leaders that soaring oil prices could set back the global economic recovery and trigger interest rate hikes are expected to emerge from a batch of key business confidence surveys to be released this week. Indeed, despite recent hopes that the 12-member eurozone was on track to a moderate economic upswing, analysts expect business confidence surveys from the currency bloc's three biggest economies - Germany, France and Italy - to have s

24 May 2004

BERLIN - Growing worries among European and German industry leaders that soaring oil prices could set back the global economic recovery and trigger interest rate hikes are expected to emerge from a batch of key business confidence surveys to be released this week.

Indeed, despite recent hopes that the 12-member eurozone was on track to a moderate economic upswing, analysts expect business confidence surveys from the currency bloc's three biggest economies - Germany, France and Italy - to have slipped or to have stagnated in May as concerns have set in about oil prices, which have jumped by about 40 percent over the last 12 months.

"The greatest risk factor is the strong rise in oil prices," said Christoph Weil, economist with Commerzbank AG.

The national business barometers will be followed up at the end of the week by the release of the European Commission industry and confidence surveys for the eurozone, which are also forecast to be unchanged underscoring worries that the jump in oil prices could result in a spike up in inflation which consequently could threaten Europe's delicately balanced recovery.

Of particular concern is that evidence that higher energy prices are boosting inflation could result in the European Central Bank and other key world central banks raising borrowing costs.

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 ECB'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 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.

Apart from oil price jitters, the European business surveys are also likely to highlight industry concerns that the recovery that has so far taken place is largely dependent on exports and that consumers are still failing to help the upswing gain strength by taking to the shops and spending.

Leading the way in the publication of the latest business confidence surveys will be Germany's Ifo report, which is expected to report Tuesday that business confidence in Europe's biggest economy slipped to 96 points in May after reporting a surprise rise in April.

Drawn up by the Munich-based Ifo institute and based on a survey of 7,000 executives, the Ifo business confidence report is considered to be one of Europe's prime economic indicators.

The release of the Ifo index comes in the wake of an unexpectedly strong showing by the German economy during the first quarter with the country chalking up a growth rate of 0.4 percent in the first three months of the year, which was higher than what economists had forecast.

But while economists are hoping that a rise in the component of the Ifo survey measuring current business conditions will help to offset any sharp fall in the overall index, they also point to last week's ZEW survey of German investor confidence, which slumped for the fifth month in a row.

Based on a survey of about 300 German analysts and institutions, the ZEW report is often seen as something of a curtain raiser to the Ifo report, especially the Ifo survey's component measuring future expectations.

German industry leaders' assessment of future business conditions dropped to an eight-month low in April, the last Ifo report said.

Likewise the mixed economic picture meant that France is also forecast to dip or report stagnating business in the eurozone's second biggest economy.

Business leaders in Italy are thought to have grown more pessimistic during May in the wake of attacks on Italian troops based in Iraq and after a sharp drop in consumer confidence.

 

DPA

Subject: German news

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