German business confidence unexpectedly fell to the lowest in more than two and a half years in September as the sovereign debt crisis clouded the economic outlook.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped for a fifth straight month to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, according to the median of 37 forecasts in a Bloomberg News survey.
The debt crisis has pushed at least five of the 17 countries using the euro into recession, curbing demand for German exports. Still, bond and equity markets have rallied since European Central Bank President Mario Draghi unveiled an unlimited bond-purchase plan designed to fight speculation of a currency breakup.
“Today’s Ifo index shows that German companies remain skeptical about the economic impact of Mario Draghi’s magic,” said Carsten Brzeski, senior economist at ING Group in Brussels. “Despite fears of a looming euro-zone breakup clearly fading away, German businesses are downscaling their expectations. The structural adjustments in Germany’s euro-zone trading partners will take time and will dampen demand for German products.”
Ifo’s measure of executives’ expectations declined to 93.2, the lowest since May 2009, from 94.2. A gauge of the current situation fell to 110.3 from 111.1.
The euro dropped more than a quarter of a cent after the report and traded at $1.2913 at 11:36 a.m. in Frankfurt, down 0.5 percent on the day.
European stocks declined as Germany and France disagreed on when to introduce a banking union for the single currency and as a report added to concern about the strength of China’s economy. The Stoxx Europe 600 Index (SXXP) fell 0.6 percent to 274.22.
Growth in Germany, Europe’s largest economy, slowed to 0.3 percent in the second quarter from 0.5 percent in the first as demand from euro-area trading partners waned, prompting companies to postpone investments. Capital investment fell 0.9 percent in the second quarter, with spending on plant and machinery down 2.3 percent.
The European Commission forecasts a 0.3 percent economic contraction this year for the euro area, Germany’s biggest export market. The German economy will expand 0.6 percent in 2012 compared with 3 percent in 2011, the Federal Labor Agency’s IAB research institute said last week.
German carmaker Daimler AG said on Sept. 20 that operating profit at its Mercedes-Benz unit will fall this year, lowering a previous target of matching the 2011 figure. Porsche AG (PAH3), another German automaker, plans to build fewer than the 155,000 cars and sport-utility vehicles originally planned for next year.
“Despite the more activist stance of the ECB, the German economy has not yet turned the corner,” said Holger Schmieding, chief economist at Berenberg Bank in London. “The widely watched Ifo survey casts a shadow over our hope that the German economy will return from its current stagnation to growth before the end of the year.”
Slowing growth in emerging markets may also damp Germany’s economic prospects. China’s manufacturers and retailers are less optimistic about sales than they were three months ago and more companies are cutting jobs, according to the China Beige Book, a survey modeled on the U.S. Federal Reserve’s Beige Book.
U.K. Financial Stability
Elsewhere in Asia, Singapore inflation slowed for a second month, increasing the central bank’s scope to ease monetary policy and bolster growth.
In the U.K., the Bank of England’s Financial Policy Committee maintained its recommendations for banks to raise capital to stave off threats to Britain’s financial system posed by the euro-zone crisis.
“The committee judged that the risks to financial stability had not altered sufficiently since its previous meeting to warrant a change to its current set of policy recommendations,” the central bank said in a statement on its Sept. 14 FPC meeting released today in London.
German exports to faster-growing markets outside Europe and domestic spending have so far helped to insulate the economy from the debt crisis. The ECB’s bond-purchase plan has also boosted financial markets and helped ease concerns about the severity of the economic slowdown.
German investor confidence rose for the first time in five months in September and gauges of activity in the manufacturing and services industries climbed more than economists forecast.
Schaeffler AG, the roller-bearing maker that’s the biggest shareholder in car-parts manufacturer Continental AG, said last month it’s sticking to forecasts for 2012 after demand from outside Europe helped second-quarter sales to rise.
“There is a feeling that progress has been made and that we’ve passed the low point,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “That gives hope for the months to come.”
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