German Business Confidence Declines as Risks Cloud Outlook

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German business confidence fell for the first time in seven months in May, signaling caution over the growth outlook for Europe’s largest economy.

The Ifo institute’s business climate index dropped to 108.5 from 108.6 in April. That still beat the median estimate of 108.3, and an earlier report showed German capital investment increased at the fastest pace in a year last quarter.

The Bundesbank has predicted that German expansion will continue in the coming months as record-low unemployment supports consumer spending. At the same time, risks remain, notably from uncertainty over Greece’s place in the euro-area.

“The weakness in global trade in early 2015, persistent geopolitical uncertainty, together with heightened volatility on European financial markets, explain the decline in German business sentiment,” said Anna Maria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. Underlying momentum “remains solid,” she said.

Ifo’s measure of current conditions climbed to 114.3 in May from a revised 114 in April. A gauge of expectations fell to 103 from 103.4.

Germany’s DAX Index of stocks was little changed at 11,856 at 10:08 a.m. Frankfurt time. The euro was 0.4 percent higher at $1.116.

One concern is Greece, where the government might run out of cash and precipitate a regional crisis that could hurt German businesses. Negotiations in Riga between the Greek, French and German government leaders ended early Friday morning without any sign of a breakthrough that will unlock bailout funds.

Capital Spending

Germany’s economy is still set to outperform that of the euro area. Unemployment is a record-low 6.4 percent, companies stand to benefit from low borrowing costs, and exporters should gain from a weak euro as the European Central Bank’s asset-purchase program continues.

Steelmaker ThyssenKrupp AG raised its full-year earnings forecast this month after reporting second-quarter profit that beat analysts’ estimates. Hanover, Germany-based Continental AG, Europe’s second-biggest maker of car parts and tires, has boosted its 2015 sales forecast three times this year.

Capital spending in Germany increased 1.5 percent last quarter, data from the Federal Statistics Office in Wiesbaden showed on Friday. Private consumption advanced 0.6 percent and government spending climbed 0.7 percent, while net trade was a drag on growth. Gross domestic product rose 0.3 percent, compared with 0.7 percent in the previous quarter.

The European Commission predicts German GDP will rise 1.9 percent in 2015 and 2 percent in 2016, compared with 1.5 percent and 1.9 percent in the 19-nation currency bloc.

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