German Ifo Business Confidence May Drop For a Third Month

German business confidence probably fell for a third straight month in July to the lowest in more than two years as the worsening sovereign debt crisis damped the outlook for economic growth and company earnings.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 104.5 from 105.3 in June, according to the median forecast of 35 economists in a Bloomberg News survey. That would be the lowest reading since March 2010. Ifo releases the report at 10 a.m. in Munich today.

Moody’s Investors Service on July 23 lowered the outlook on Germany’s Aaa credit rating to negative, citing the risk that Greece could leave the euro and an “increasing likelihood” that countries such as Spain and Italy will require support. While the Bundesbank said this week that the German economy probably grew moderately in the second quarter, aided by domestic demand, latest data show the manufacturing and service industries are contracting.

“German executives have had a serious crisis wake-up call,” said Carsten Brzeski, an economist at ING Group in Brussels. “While the domestic economy will help to offset some drop off in exports for the time being, there is now a real fear the euro area will implode.”

Ifo’s gauge of the current situation may have declined to 113 from 113.9 and a measure of executives’ expectations probably slipped to 96.8 from 97.3, the survey of economists shows. Investor confidence fell for a third month in July and the benchmark DAX share index has lost 10 percent in the last four months.

European Slowdown

Germany’s Puma SE (PUM), Europe’s second-largest sporting-goods maker, on July 18 cut its 2012 sales and profit forecasts and said it will close some stores and may also eliminate jobs after business slowed in the first half of the year. The slowdown was particularly noticeable in Europe, the company said.

Still, SAP AG (SAP), the largest maker of business-management software, is beating rivals to contracts as companies limit their spending amid slowing economic growth, co-Chief Executive Officer Jim Hagemann Snabe told Bloomberg Television yesterday.

“While the worries are there about the euro, companies are still investing, and software is one of the areas they invest in to manage this new area of uncertainty,” he said.

Rising wages and unemployment at a two-decade low are also bolstering domestic spending in Germany, helping to counteract waning export demand.

The Bundesbank in June predicted German growth of 1 percent this year. By contrast, the European Commission forecasts a 0.3 percent contraction for the 17-nation euro economy as a whole.

“Germany is vulnerable to the crisis because of its dependency on foreign trade, and that will have an impact on the economy,” said Jens Kramer, an economist at NordLB in Hanover. “But it’s unlikely to push it off a cliff. Germany will remain Europe’s rock in a stormy sea.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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

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