German business optimism fades as debt crisis bites in
The debt crisis has pushed business confidence in Germany, Europe’s biggest economy, to the lowest level for more than two years, according to newly-released data. Compounding an unexpectedly sharp drop in investor sentiment earlier this week, the Ifo...
The debt crisis has pushed business confidence in Germany, Europe’s biggest economy, to the lowest level for more than two years, according to newly-released data.
Compounding an unexpectedly sharp drop in investor sentiment earlier this week, the Ifo economic institute’s closely watched business climate index fell to 105.3 points in June from 106.9 points in May.
It is the second month in a row that the index has fallen and brings the barometer to its lowest level since March 2010.
“The recent surge in uncertainty in the eurozone is impacting the German economy,” said Ifo president Hans-Werner Sinn.
“While companies’ assessments of their current business situation brightened slightly, they scaled back sharply their expectations for the next six months,” Mr Sinn said.
Ifo calculates its headline index on the basis of companies’ assessments of their current business and the outlook for the next six months, with 100 being the long-term average.
And while the sub-index measuring current business edged up to 113.9 points in June from 113.2 points in May, the outlook sub-index tumbled to 97.3 points from 100.8 points, its lowest level since October 2011.
The decline in the Ifo index this month was slightly steeper than expected.
Berenberg Bank economist Christian Schulz said a breakdown of the data painted a mixed picture across the different sectors.
Manufacturing was hit by a deterioration of the export outlook, “a clear indication that companies feel the impact of the euro crisis elsewhere,” he said.
By contrast, the most domestically-oriented sectors – retail and construction – reported a slight improvement in the business climate.
“The key for the economic outlook is the management of the euro crisis,” Mr Schulz said.
“Based on very sound economic fundamentals, the German economy can start expanding at trend growth rates again, once this wave of the euro crisis is brought under control. This week’s EU summit and the subsequent ECB meeting on July 5 stand a decent chance of achieving that,” the analyst argued.
If EU leaders in Brussels make progress on a banking union and growth initiatives, “the ECB will probably complement that by following other central banks across the world in cutting rates and providing more liquidity to the banking system,” he said.