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ECONOMICS > Business confidence data a new concern for Berlin

BERLIN - Agence France Presse

Business confidence in Germany, the power engine of the eurozone economy, falls for a third month in a row. This comes one day after Moody’s cut it outlook on Germany’s perfect triple A rating to negative

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A metal worker grinds a piece in a factory building in Herbolzheim. The eurozone’s largest economy faces a rating cut risk.

A metal worker grinds a piece in a factory building in Herbolzheim. The eurozone’s largest economy faces a rating cut risk.

Storm clouds gathered over Europe’s top economy yesterday as eurozone debt fears drove down German business confidence after a ratings agency switched its outlook for the country to negative.

 Business confidence in Germany dropped for the third month in a row in July as companies grew increasingly pessimistic about the fallout from the euro area’s debt turmoil, data from the Ifo economic institute showed.

The news came hard on the heels of Moody’s on July 23 taking the first step toward stripping Germany of its coveted top triple-A credit rating, cutting the outlook for Europe’s largest and economy to “negative” from “stable.”

Moody’s cuts EU bailout fund outlook

Moody’s also lowered the outlook on the EU’s bailout fund from stable to negative, after threatening the credit ratings of three of the eurozone’s major guarantors.

Moody’s said its decision to lower the outlook on the European Financial Stability Facility (EFSF) reflected the changes in outlooks on Germany, the Netherlands and Luxembourg.

Analysts said the Ifo report confirmed the pessimism. The IFO’s closely watched business climate index dropped to 103.3 points in July from 105.2 points in June, a slightly steeper decline than analysts had been expecting.

Economists polled by Dow Jones Newswires had pencilled in a drop to 104.5 points this month.
“The euro crisis is having an increasingly negative impact on the German economy,” said Ifo president Hans-Werner Sinn.

“The business climate in manufacturing deteriorated significantly. More specifically, manufacturers assessed their current business situation much less favorably than last month.” He said manufacturers were also downbeat about the business outlook although other sectors of Europe’s top economy provided some solace.

“Developments in retailing offer a ray of hope, as the business climate indicator continued to rise at this level of trade,” Sinn said. “Retailers assessed both their current business situation and their six-month business outlook more favorably.” The wholesale business climate continued to deteriorate, with a gloomy outlook for future prospects, and the building sector reported serious doubts.

Ifo calculates its headline index on the basis of companies’ assessments of their current business and the outlook for the next six months, with 100 being the long-term average.

The sub-index measuring the current business situation fell to 111.6 points in July from 113.9 points in June, while the outlook sub-index dropped to 95.6 points from 97.2 points -- the lowest level in three years. “July’s Ifo index will add to the growing concerns over the health of the German economy,” said Jonathan Loynes, chief European economist at Capital Economics. “The Ifo is not the best indicator of overall economic growth but, on past form, the BCI (business confidence index) points to broadly stagnant GDP (Gross Domestic Product).

July/26/2012

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