German business confidence falls again

Germany’s closely watched Ifo business confidence index continued its fall in September to its lowest level in nearly 18 months.

The index, collated by Munich’s Ifo economic institute, registered its fifth consecutive fall in September to 104.7 points from 106.3 points in August -- worse than economists’ forecasts. Survey results suggested German managers have not been this pessimistic about their firms’ current situation since March 2010.

Growing uncertainty over the full cost of the EU-Russia sanctions, meanwhile, has depressed their six-month outlook to its lowest level since the euro crisis days of December 2012.

“The German economy is no longer running smoothly,” warned Ifo president Hans-Werner Sinn. “Although assessments of the current business situation improved slightly, scepticism with regard to future business developments increased significantly.”

The index showed falls across all sectors, from manufacturing and retail to wholesale and construction. The latter is at its lowest level in almost two years, though is performing well in historical terms.

In construction the index dropped to its lowest level since December 2012. It nevertheless remains at a very high level historically. Construction firms were slightly less satisfied with their current business situation than in August. The business outlook also clouded over slightly.

The business climate index is based on 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing where managers are asked to assess the current business situation and their expectations for the next six months.

The gloomy mood visible in the Ifo data was palpable among leading economists, with ING economist Carsten Brzeski warning that Europe’s largest economy “has reached a dangerous stage between soft spell and longer-lasting almost-stagnation”.

On Tuesday, the monthly Purchasing Managers Index (PMI) indicated Germany’s crucial manufacturing industry expanded at the slowest rate in 15 months during September.

Other German economists said the wave of poor data were blips rather than part of a long-term negative trend. They pointed to the Ifo’s own forecast that Germany’s gross domestic product (GDP) will grow in 2014, despite shrinking by 0.2 per cent in the second quarter.

“The Ifo index supports our view that the German economy will probably only stagnate for the rest of the year,” said Mr Christian Schulz, senior economist at Berenberg, in a research note.

Nevertheless the disappointing data is likely to fuel further demands from outside Germany for Berlin do more to boost growth at home and allow greater stimulus measures around the euro area.