German Ifo Business Confidence Deteriorates For Third Month
Confidence among German firms deteriorated for the third successive month in July to the lowest level in more than two years as heightened tensions surrounding the debt crisis weighed on business expectations, more notably in the manufacturing sector, results of a key survey revealed Wednesday.
The Ifo Institute said its headline business climate index fell to 103.3 in July from a revised 105.2 in June. Economists had expected the index to fall to 104.5.
The latest reading was the weakest since March 2010. The euro crisis is having an increasingly negative impact on the German economy, Ifo said.
The assessments of the current business situation were more cautious again this month after improving in June. The index measuring opinion on the current business conditions fell to 111.6 in July from 113.9 in June. It was expected to fall to 113.
Business expectations were also more pessimistic. The corresponding index dropped to 95.6 from 97.2 in the previous month. Economists had forecast the reading to fall to 96.8.
The business climate in manufacturing deteriorated significantly during the month. Manufacturers' assessment of their current business situation was less favorable than last month and their business expectations also fell considerably.
"With austerity-driven slowdowns coming now also to most other core Eurozone countries, an obvious cooling of the Chinese economy and a still not very dynamic US recovery, order books are emptying and companies have started to reduce stocks," Carsten Brzeski, an economist at ING Bank NV said.
The latest purchasing managers' survey by Markit Economics revealed Tuesday that the private sector contracted in July, marking the weakest performance since June 2009. Both services and manufacturing activity declined during the month.
Confidence is unlikely to recover in the near-term as the situation in Eurozone continue to worsen amid growing fears that Greece may exit Eurozone and that Spain may need a full-blown bailout.
The latest survey by Centre For European Economic Research (ZEW) showed that German investor sentiment declined for the third month in a row to its lowest level in six months in July.
Moody's Investors Service on Monday warned that Germany may lose its Aaa credit rating due to heightened uncertainty regarding the prospects of the debt crisis and increasing likelihood of a Greek exit. Germany's benchmark 10-year climbed afterwards as its safe-haven appeal waned.
In a report released on July 20, the Finance Ministry said growth slowed 'somewhat' in the second quarter amid weak industrial production. According to ministry forecast, the economy will grow at a moderate pace during the rest of the year.
Official second quarter gross domestic product data is due on August 14. The economy expanded 0.5 percent in the first quarter.
The International Monetary Fund this month lowered the growth forecast for the the German economy to 1 percent this year from 0.6 percent seen in April. Next year, the economy is seen expanding 1.4 percent, which is less than the 1.5 percent forecast earlier.
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