Japanese crisis, oil prices hit German business sentiment

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High oil prices, Middle East unrest and the Japanese earthquake and nuclear crisis have weakened German business confidence for the first time since May, the Ifo institute and analysts said Friday.

Ifo's closely-watch indicator of business confidence edged lower following nine increases running, to 111.1 points from 111.3 in February, the economic research group said.

The fall was however not as steep as feared by economists, who had forecast on average a drop to 110.5 points.

"Almost half the responses (for the survey) came in after the disaster in (Japanese nuclear plant) Fukushima," the Ifo institute said in a statement.

"All in all, however, firms in Germany remain very confident. The business situation is even better than before ... Germany is in an upswing," it said.

Jonathan Loynes, chief Europe expert at Capital Economics, said that "while the economy retains a considerable amount of momentum, there are tentative signs that the rate of recovery may have reached a peak."

He cautioned not to read too much into the fall, however, retaining his forecast of three-percent growth in Europe's biggest economy this year.

"Nonetheless, coupled with declines in other recent survey indicators such as the ZEW, the fall perhaps provides the first sign that the super-strong recovery in the Germany economy is starting to lose a little bit of steam."

Analysts in general were not too worried about the strength of the German economy, noting that a sub-index that measures business leader's assessment of current conditions had increased to 115.8 points from 114.8 in February.

However the sub-index for the six-month outlook declined to 106.5 from 107.9 which pulled the overall index lower.

But when considered alongside purchasing managers indices for Belgium, France and the Netherlands released on Thursday, the data "suggest that the eurozone recovery remains on track for the time being," Berenberg Bank senior economist Holger Schmieding said.

In Germany, the manufacturing sector continued to provide the most support and planned to keep hiring, Ifo found, while sentiment was a bit weaker in the retail, wholesale and construction sectors.

"The only serious and substantial threat for the German economy from recent global developments is linked to energy prices," ING senior economist Carsten Brzeski commented.

He pointed to the potential for further Middle East unrest and the chances that Japan's nuclear crisis could fuel higher prices for oil and natural gas.

Debt problems in peripheral eurozone countries and a likely European Central Bank interest rate hike in April did not seem to be major threats however, analysts said.

As long as global growth momentum is maintained, "the German economy will stay very robust during 2011," IHS Global Insight economist Timo Klein forecast.

© 2011 AFP

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