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August 28, 2012

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Germany's business confidence falls for 4th month

GERMAN business confidence has fallen for the fourth straight month as the sovereign debt crisis curbs growth in Europe's largest economy.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 102.3 from 103.2 in July. That's the lowest reading since March 2010. Economists predicted a decline to 102.7, based on 37 forecasts in a Bloomberg News survey.

Germany's economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first as the debt crisis damped demand for exports and prompted companies to postpone investment. While sales to faster-growing markets outside Europe and domestic spending are helping insulate Germany from the turmoil, the Bundesbank said last week that the prevailing uncertainty may cause the economy to cool further.

"The pressure on Germany's economy is increasing," said Ulrike Kastens, an economist at private banking group Sal. Oppenheim in Cologne. "Industry is suffering from the crisis in the euro area."

The debt crisis has driven up borrowing costs in Spain and Italy, threatening the survival of the euro.

German capital investment fell 0.9 percent in the second quarter from the first, with spending on plant and machinery down 2.3 percent and construction spending falling 0.3 percent.

Unemployment remains at a two-decade low of 6.8 percent as German companies tap markets outside Europe.

"Private consumption is still growing and Germany is still a big player when it comes to exports," said David Milleker, chief economist at Union Investment GmbH in Frankfurt. "However, the weak investment dynamic is a big concern, and this is why managers are becoming more pessimistic."



 

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