German business confidence tumbles

Confidence is draining from German businesses, with a survey finding sentiment fell for a fifth successive month in September to its lowest level in nearly 18 months.

Fuelling fears that Europe’s largest economy is running out of steam, the Munich-based Ifo thinktank’s business climate index, based on a monthly poll of about 7,000 firms, tumbled from 106.3 to 104.7, back to the level of spring last year.

Warning that the German economy is no longer running smoothly, the thinktank said sentiment worsened across all sectors of the economy.

After a strong showing in the early part of the year, Berlin has wrestled with waning business confidence and increasing reticence among consumers to spend. Official figures showed GDP shrank in the second quarter by 0.2%. Analysts said the Ifo index indicated GDP may shrink again when third quarter figures appear next month.

A second quarterly contraction in GDP will mean the German economy is officially in recession, denting the country’s image as the engine of eurozone growth.

IHS Global Insight said the conflicts in eastern Ukraine and the Middle East were having a more serious impact on German firms than expected.

About 10% of German companies export to Russia. Berenberg bank said the drop in confidence will persuade firms to cancel investments.

Concerns that the eurozone’s major economies are struggling prompted the European central bank (ECB) president, Mario Draghi, to say he will keep monetary policy loose for as long as it takes to encourage growth.

He said: “Monetary policy will remain accommodative for a long time and I can tell you that the ECB governing council is unanimous in committing itself to using the tools at its disposal to bring inflation back to just under 2%.”

Referring to signs of growth elsewhere in the world, he said ECB policy would remain accommodative, even “while other countries’ monetary policy may gradually acknowledge recovery is taking place”.

Powered by article was written by Phillip Inman, economics correspondent, for on Wednesday 24th September 2014 20.03 Europe/London © Guardian News and Media Limited 2010


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