German Business Confidence Falls Drags EUR Down

Europe’s largest economy has shown further signs of fragility, as a key indicator of German business confidence fell for a fifth successive month.

The Ifo think tank’s Business Climate Index dropped to 104.7, slightly below analysts’ expectations, and the lowest reading since April last year.

“The German economy is no longer running smoothly,” Ifo said, but added that it still expected gross domestic product (GDP) to grow in 2014.

GDP shrank by 0.2% in the last quarter.

On Monday, Germany’s central bank insisted that the country’s economy remained robust, adding that “the general economic trend should stay positive despite the slowdown in the speed of expansion in the first half of 2014”.

However, monthly Purchasing Managers Index (PMI) figures, released on Tuesday, indicated that Germany’s manufacturing industry expanded in September at the slowest rate in 15 months.

Ifo’s president, Hans-Werner Sinn, also said that his organisation’s report found that “expectations for the next six months hit their lowest level since December 2012”.

The Ifo’s Business Climate Index is based on approximately 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing.

Germany’s economic woes will be of great concern to the eurozone, which is battling persistently low growth and low inflation.

Earlier this month, the European Central Bank introduced new measures to stimulate the area’s flagging economy.

As well as launching an asset purchase programme, through which it will buy debt products from banks, the ECB cut its benchmark interest rate to 0.05%.

via BBC

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