German business confidence hits 14-month low in August

FRANKFURT: German business confidence fell sharply this month, the Ifo economic research institute said Wednesday as it released the latest in a series of bleak indicators for the eurozone's economy.

The monthly Ifo business climate index plunged to 108.7 points from 112.9 points in July, underscoring a sharp slowdown seen also in eurozone consumer confidence.

German business expectations for the coming six months showed a sharp drop as well, a development noted with particular concern by analysts.

The latest Ifo poll was well below expectations of a decline to 111 points and was the biggest drop since the index lost 4.9 points in November 2008.

It was also the measure's lowest level since June 2010 and marked a very sharp fall from the record high of 115.4 in February as the German economy, the eurozone's biggest, bounced back from its worst post war recession.

"Turbulence in the financial and foreign exchange markets, the sovereign debt crises in certain eurozone countries and the development of the US economy have contributed to uncertainty," Economy Minister Philipp Roesler said in a statement.

An Ifo sub-index that measures companies' expectations for the next six months fell to 100.1 points meanwhile from 105.

A figure below 100 indicates a downturn and it was the expectations' lowest level since October 2009.

UniCredit counterpart Andreas Rees noted it was also the indicator's sixth consecutive decline and added: "There can absolutely be no denying that this is a downward trend."

An Ifo statement quoted president Hans-Werner Sinn as saying: "The current business situation, however, continues to be assessed overall as good, although the situation appraisals in recent months were significantly more favourable."

The survey of around 7,000 firms showed falls in all of its categories -- manufacturing, retailing and construction, and backed up an EU Commission survey of consumer confidence released on Tuesday.

That poll's fall of 5.4 points to minus 16.6 points was a sharper drop than one seen in October 2008 after US investment bank Lehman Brothers collapsed, setting off the global financial crisis and recession.

"The Ifo survey data therefore add to a growing picture of rapidly deteriorating business and household confidence in Germany," Markit chief economist Chris Williamson said.

Meanwhile, eurozone industrial orders also surprised economists on the downside, showing a decline of 0.7 percent in June instead of an anticipated gain of 0.5 percent, according to EU data.

On Tuesday, Markit's purchasing managers index for eurozone private sector activity showed it stagnating in August while the ZEW index of German investor confidence slumped for the sixth month running to a level last seen in December 2008.

Commerzbank chief economist Joerg Kraemer said the debt crisis would decide if Germany now just faced a soft patch or a more serious downturn.

The German economy grew just 0.1 percent in the second quarter, well off the first quarter pace of 1.3 percent.

If the debt crisis escalates "and Italy and Spain are cut off from the capital markets and default, this would likely trigger a global uncertainty shock similar to after the Lehman bankruptcy. The economy would then enter a serious recession," Kraemer warned.

Economists agreed that in light of the softer data, the European Central Bank would refrain from raising its main interest rate again this year, having already hiked it twice by 0.25 percentage points to 1.50 percent.

Copyright AFP (Agence France-Presse), 2011