German Business Confidence Fell More Than Forecast in July
German business confidence fell more than economists forecast 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 in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 103.3 from 105.2 in June. That’s the third straight decline and the lowest reading since March 2010. Economists predicted a retreat to 104.5, according to the median of 35 forecasts in a Bloomberg News survey.
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.
“The crisis costs Germany money,” said Christian Schulz, senior economist at Berenberg Bank in London. “Not because of the bail-outs it guarantees, not because of a potential ratings downgrade and its impact on borrowing costs, but because the economy is growing much more slowly than it otherwise would. It could stagnate or even fall into recession.”
Ifo’s gauge of the current situation declined to 111.6 from 113.9 and a measure of executives’ expectations fell to 95.6, the lowest since June 2009, from 97.2. The euro dipped on the report before resuming its climb to trade at $1.2121 at 11 a.m. in Frankfurt.
Investor confidence fell for a third month in July and the benchmark DAX share index has lost 10 percent in the last four months.
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.
“If the euro area crashes then even the strong labor market won’t save the German economy,” said Alexander Koch, an economist at UniCredit Group in Munich. “So far, the economy is not too wobbly, but it does depend on how the crisis evolves.”
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