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German business confidence falls to near two-year low

Monday, October 27, 2014 - 18:04
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Business confidence in Germany, Europe's biggest economy, fell to the lowest level for nearly two years in October, a key survey showed on Monday, placing a question mark over recovery in the eurozone as a whole.

[FRANKFURT] Business confidence in Germany, Europe's biggest economy, fell to the lowest level for nearly two years in October, a key survey showed on Monday, placing a question mark over recovery in the eurozone as a whole.

The Ifo economic institute's closely watched business climate index fell to 103.2 points in October, its lowest level since December 2012, the think-tank said in a statement.

The Ifo survey is based on assessments by companies of their current business, and the outlook for the next six months and both showed noticeable deterioration last month.

"Assessments of the current business situation were once again less favourable than last month," said Ifo president Hans-Werner Sinn.

"Expectations with regard to the six-month business outlook continued to cloud over. The outlook for the German economy deteriorated once again," Sinn said.

The sub-index measuring current business hit its lowest level since April and the outlook sub-index fell to the lowest level since December 2012.

Following an unexpected increase in the German purchasing managers' index last week, and falling energy prices and a softening euro, the renewed decline in the Ifo survey - the sixth monthly drop running - came as a blow, said Capital Economics economist Jennifer McKeown.

It "suggests that the recovery is unlikely to regain moment at the end of the year," she said.

"We continue to expect German GDP to rise by 1.3 percent this year and 1.5 per cent next. But even this will not be enough to ensure a strong recovery or eradicate the threat of deflation in the eurozone as a whole and the risks are to the downside," Ms McKeown said.

ING DiBa economist Carsten Brzeski felt the Ifo drop suggests that "the eurozone's biggest economy has reached a dangerous stage between soft spell and longer-lasting almost-stagnation." On Sunday, the European Central Bank gave the large majority if eurozone banks a clean bill of health in a crunch new audit, aimed at eliminating one of the key factors of uncertainty hanging over the single currency area.

But whether the results of the ECB's "comprehensive assessment" will be enough to turn sentiment around was open to question, said Berenberg Bank economist Christian Schulz.

"We expect a stabilisation before the end of the year. Unfortunately, the October Ifo data suggest that the risks to our near-term calls remains to the downside," he said.

Commerzbank economist Joerg Kraemer said that "after gross domestic product (GDP) stagnated at best in the third quarter, no substantial growth can be expected in the fourth quarter." "But even we as economic pessimists are not expecting a recession," he added.

AFP