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German Ifo Business Confidence Probably Fell to Eight-Month Low

German business confidence probably declined to the lowest level in eight months in July as the European debt crisis and weakening global demand damped the economic outlook.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 113.7 from 114.5 in June, according to the median forecast of 42 economists in a Bloomberg News survey. That’s the lowest since November. The institute releases the report at 10 a.m. in Munich today.

European leaders met in Brussels yesterday in the latest attempt to stem a 21-month debt crisis that is threatening to engulf Spain and Italy. While investor sentiment in Germany, Europe’s largest economy, dropped more than forecast in July, the country’s economic outlook remains “favorable” as stronger domestic demand compensates for a slowdown in export growth, the Bundesbank said this week.

“A slowdown in growth is somehow overdue,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “While we’ll see a soft spot in coming months, the German economy remains on a sound footing.”

Ifo’s gauge of the current situation may decrease to 122.3 this month from 123.3 in June, while an index measuring executives’ expectations probably eased to 105 from 106.3, the survey of economists shows.

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Germany’s jobless rate has fallen to the lowest in two decades and the Bundesbank forecasts that the economy will expand 3.1 percent this year and 1.8 percent in 2012. That would compare with growth of 1.6 percent and 1.8 percent in the euro area, according to European Commission projections in May.

Volkswagen AG (VOW), Europe’s biggest carmaker, said July 15 it expects to continue outperforming the auto market in the second half of the year as the Wolfsburg, Germany-based company benefits from growth in emerging markets such as Brazil, Russia, India and China.

At the same time, some companies have signaled concern that austerity measures in euro-area nations and a clouded outlook in the U.S. risk hurting profit growth.

“While we’re enjoying a lot of success with new models and seeing many markets moving very strongly, we also see some potential risk,” Bayerische Motoren Werke AG (BMW)’s Marketing Director Ian Robertson said July 14. “Certain economies around the world will go into a more difficult situation.”

German consumer sentiment will rise for the first time in four months in July, Nuremberg-based market research company GfK predicted on June 28. “Good general conditions” have become “more influential than detrimental factors, such as the state of affairs in Greece,” it said.

“The combination of a global economic slowdown and the ongoing uncertainty about the debt crisis will certainly start to affect companies’ outlook,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, despite all potential risks, I remain optimistic about the German economy, not at least due to the strengthening of domestic demand.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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