Autumn chill for German business confidence

24th September 2014, Comments 0 comments

Germany's Ifo business confidence indicator fell to its lowest level in 17 months in September, data showed on Wednesday, as Europe's biggest economy increasingly feels the chill from geopolitical crises.

The Ifo economic institute's closely watched business climate index fell to 104.7 points in September, from 106.3 points in August, the think-tank said in a statement.

That is the lowest level since April 2013 and represents the fifth consecutive monthly drop.

"Companies' assessment of their current business fell again. And their expectations for the next six months hit their lowest level since December 2012," said Ifo president Hans-Werner Sinn.

"The German economy is no longer running smoothly."

Ifo calculates its headline index on the basis of companies' assessments of current business and the outlook for the next six months.

The sub-index measuring current business slipped to 110.5 points from 111.1 last month, while the outlook sub-index fell to 99.3 points from 101.7 points.

"The eurozone's biggest economy has reached a dangerous stage between soft spell and longer-lasting almost-stagnation," said ING DiBa economist Carsten Brzeski.

"The German economy is currently split in two: a strong domestic economy, backed by record-high employment, gradually increasing wages and a booming construction sector, and at the same time a stagnating external part," the expert said.

Increased geopolitical tensions and weakening emerging market economies, including China, were taking their toll on German exports, he said.

Capital Economics economist Jonathan Loynes said the renewed drop in the Ifo index brings "further worrying signs that the recovery in the German economy is grinding to a halt".

The European Central Bank's interest rate cuts "don't appear to have improved sentiment," he said.

The weakness of the survey "clearly adds to the pressure on the ECB to take more decisive action ... but it also supports recent calls for the German government to provide more support to the economy by loosening the fiscal reins and increasing its spending," Loynes said.

Berenberg Bank economist Christian Schulz said the Ifo index "supports our view that the German economy will probably only stagnate for the rest of the year".

The ECB's recent policy moves "have so far not been able to turn the tide," he said.

At the beginning of the month, the ECB's decision-making governing council voted to cut the bank's key interest rates to new all-time lows to prevent the rot of deflation setting in the faltering eurozone economy.

And it also promised to launch a programme of asset purchases to inject cash into the bloc.

© 2014 AFP

0 Comments To This Article