German business sentiment continues to fall

GERMANY HAS slipped closer to the euro zone crisis after a closely-watched business confidence index recorded its fourth consecutive monthly fall, touching the crucial exports market.

Business sentiment dropped to its lowest level since March 2010, according Munich’s Ifo institute, reviving fears that the crisis has finally hit Europe’s largest economy.

“For the first time in more than two years, German export expectations slipped into negative numbers,” said Ifo economist Kai Carstensen.

“A majority of German exporters expect their situation to worsen in the next six months,” he said.

The main index, based on a survey of 7,000 German managers, fell to 102.3 points in August.

This is down from a revised 103.2 in July.

Current conditions were down only slightly, the survey shows.However, managers see dark clouds gathering in the coming months in several sectors, including manufacturing and retail.

After growth slowed from 0.5 per cent in the first quarter to 0.3 per cent in the second, the Ifo said further bad news could not be ruled out, although it was too soon to talk of recession in Europe’s largest economy.

Dr Carstensen said investors were anxious for an end to uncertainty caused by the euro zone crisis.

“We could accept turbulences right now as a rebalancing and hope that things get better afterward,” he said.

“But what we have is lingering on for more than a year – that drives up uncertainty.”

The Ifo verdict follows a warning from the Bundesbank last week that a prevailing mood of uncertainty could see a slowdown in German exports to the euro zone and non-European markets, causing the economy to cool even further in this and next year.

ING analyst Carsten Brzeski said Germany was succumbing slowly to the “euro crisis virus”.

“Exports and domestic consumption have shielded the German economy until now,” he wrote in an investor note.

“This immunity, however, has been crumbling away quickly over recent months.

“As a consequence, it looks as if the German economy will, at best, be treading water in the coming months.”

He added that, given “sound fundamentals”, a slowdown in Germany should “hardly feel recessionary”.