Business confidence fell sharply in September as concerns set in about the outlook for Europe’s biggest economy following a surge in the euro and a round of financial market turmoil, a key survey released Tuesday showed.
The Munich-based ifo economic institute said its monthly index of 7,000 executives dropped for the fourth consecutive month in September slumped to 104.2 points from 105.8 points in August. Economists had predicted the closely watched index would fall to 105.1 points after the euro sprung from record high to record high in recent weeks and worries grew about the global economic of the US housing market crisis. “The first economic skid marks are visible,” said ifo President Hans-Werner Sinn releasing the latest survey. Moreover, many economists also expect the index to slide to about 100 points by the end of the year as a sign of the growing economic uncertainty facing Germany. After a series of moves by economists to revise down German growth forecasts, the nation’s economy is projected to slow to 2.3% or below 2% next year following about 2.6% this year. The German economy expanded by a perky 2.9% in 2006.
“Economic activity is still robust but the pace of growth is falling,” said Michael Huether, president of the Cologne-based IW economic institute on Monday releasing the think tank’s latest German growth projections. The IW expects German growth to dip back to 1.9% in 2008 with exports to slump from 8.2% this year to 6.4% next year. German exports grew at 12.5% in 2006. The ifo institute also mounted its latest survey against the backdrop of oil prices jumping to an all-time high of above $82 a barrel and the euro springing from record high to record high.
The euro began the new trading week Monday building on last week’s gain to trade at over $1.41 as it edged its way towards its next critical mark of $1.45. Tuesday’s release of the September ifo report will set the stage for the publication of a series of leading European economic sentiment reports later this week, including business confidence in France as well as a survey of industry and consumers from the European Commission. (m&c.com)