German Ifo Business Confidence Drops for Sixth Month

Updated on

German business confidence dropped for a sixth month as the specter of a recession haunts Europe’s largest economy.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 103.2 in October from 104.7 in September. That’s the lowest since December 2012. Eonomists predicted a decline to 104.5, according to the median of 38 estimates in a Bloomberg survey.

The German economy, which helped the euro area emerge from its longest-ever slump last year, contracted in the second quarter, and the Bundesbank predicts little, if any, growth in the second half. Factory orders, industrial production and exports all plunged the most since 2009 in August, and investor confidence slid for a 10th month in October.

“The latest numbers from the industrial sector are very worrisome,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “The third quarter was probably worse than expected, the economy may have stagnated at best.”

Economists surveyed by Bloomberg from Oct. 3 to Oct. 9 predict quarterly growth of 0.3 percent in the July-September period. The Federal statistics office is scheduled to release a preliminary estimate on Nov. 14.

Ifo’s measure for current conditions dropped to 108.4 in October from 110.5 in September, and a gauge for expectations fell to 98.3 from 99.2.

The euro was little changed after the report and traded at $1.2694 at 10:06 a.m. Frankfurt time.

Economic Risks

Germany’s export-oriented economy is suffering from sanctions by the European Union and the U.S. against Russia and instability in the Middle East. A slowing economy in China, the country’s third-largest trading partner, and weaker demand from its euro-region peers are adding to risks.

BASF SE, the Ludwigshafen, Germany based chemical maker, cut profit targets last week and abandoned its sales goal for next year, citing “reduced growth dynamics of emerging markets and a delayed recovery in the European economy.”

Growth in the 18-nation euro area came to a halt in the second quarter. The European Central Bank, which revealed results of a yearlong bank audit yesterday, has ramped up stimulus to avoid a deflationary spiral, with households postponing spending.

PMI Surveys

Yet, it’s not all doom and gloom. Purchasing Managers’ Indexes for the manufacturing industry in Germany and the currency bloc unexpectedly signaled growth in October.

Daimler AG, the world’s third-largest maker of luxury vehicles, reported third-quarter profit on Oct. 23 that exceeded analyst predictions as deliveries of the Mercedes-Benz S-Class more than doubled.

“If Germany dragged the euro zone into the rough patch after Russia’s aggression in Ukraine, it can drag it out again, too,” said Christian Schulz, senior economist at Berenberg Bank in London. “Germany is fundamentally still in a very strong position.”

(Updates with Ifo breakdown in sixth paragraph, market reaction in seventh.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE