Monday 11 December 2017

German business confidence unexpectedly declines

Gabi Thesing

German business confidence unexpectedly fell after Europe’s debt crisis rattled financial markets and fueled concerns about the future of the euro.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, eased to 101.5 from 101.6 in April.

Economists expected an increase to 101.9, according to the median of 37 forecasts in a Bloomberg News survey. A separate report showed German service and manufacturing industries expanded at a weaker pace in May.

The euro has plunged 6.5pc against the dollar in the past month as policy makers’ pledge of a €750bn safety net failed to allay investor concern that Europe’s monetary union could collapse.

While a weaker euro makes exports more competitive outside the currency bloc, budget cuts across the region could damp economic growth and curb European demand for German goods.

“The market situation affected the Ifo outcome, even though the fundamentals are still really strong,” said Aline Schuiling, an economist at Fortis Bank in Amsterdam. “German exports will continue to profit from the global upswing and the weaker euro.”

The euro was little changed after the Ifo report at $1.2493. Europe’s benchmark Stoxx Europe 600 Index pared its decline after reaching a six-month low this morning.

‘Under a rock’

Ifo’s gauge of the current situation rose to 99.4 from 99.3, while an index of executives’ expectations eased to 103.7 from a three-year high of 104.

“You would have to have been living under a rock for the past three weeks not to have been affected by the news,” said Carsten Brzeski, an economist at ING Group in Brussels. “The crisis increases insecurity and leaves people wondering.”

German investor confidence slumped this month amid the market turmoil, which was triggered by Greece’s budget blowout.

Germany’s service and manufacturing industries expanded at a weaker pace in May, a survey of purchasing managers by Markit Economics showed today, suggesting the euro-region economy is struggling to gather strength.

Puma AG, Europe’s second-largest sporting-goods maker, said this week that the euro’s slump will have unfavorable long-term consequences for its business because it pays for some of its products in dollars.

Weaker euro

Still, the weaker euro is making European exports more competitive outside the region. Daimler AG, the world’s second- biggest maker of luxury vehicles, last month raised its earnings forecast by 74pc after demand for Mercedes-Benz cars fueled a return to profit in the first quarter.

The German economy unexpectedly expanded in the first three months of the year, driven by exports and company investment.

Gross domestic product rose 0.2pc from the fourth quarter, when it also gained 0.2pc.

While the coldest weather in 14 years suppressed construction over winter, latest reports suggest the economy sprang back to life when building sites reopened with the arrival of spring.

Government stimulus measures put in place during last year’s recession have also helped keep a lid on unemployment, which unexpectedly fell to 7.8pc in April.

Bloomberg

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