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German Business Confidence Unexpectedly Falls Again

Published: September 24, 2012 | 8:43 am
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(Corrects second paragraph to show index was last lower in February 2010. For more on the euro crisis, TOP CRIS.)

German business confidence unexpectedly fell to a for a fifth straight month in September as the sovereign debt crisis clouded the economic outlook.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, according to the median of 37 forecasts in a Bloomberg News survey.

The debt crisis has pushed at least five of the 17 countries using the euro into recession, curbing demand for German exports. Still, bond and equity markets have rallied since European Central Bank President Mario Draghi unveiled an unlimited bond-purchase plan designed to fight speculation of a currency breakup and regain control of interest rates in the euro area.

“The ECB’s decision to buy bonds has substantially reduced the probability of a euro collapse,” said Alex Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “On the other hand, German companies are still cautious and have been investing less.”

Ifo’s measure of the current situation fell to 110.3 from 111.1 while a gauge of executives’ expectations dropped to 93.2, the lowest since May 2009, from 94.2.

The euro dropped more than a quarter of a cent after the report to $1.2924, the lowest since Sept. 12.

Slower Growth
Growth in Europe’s largest economy slowed to 0.3 percent in the second quarter from 0.5 percent in the first as demand from euro-area trading partners waned, prompting companies to postpone investments. Capital investment fell 0.9 percent in the second quarter, with spending on plant and machinery down 2.3 percent.

The European Commission forecasts a 0.3 percent economic contraction this year for the euro area, Germany’s biggest export market. The German economy will expand 0.6 percent in 2012 compared with 3 percent in 2011, the Federal Labor Agency’s IAB research institute said last week.

German carmaker Daimler AG said on Sept. 20 that operating profit at its Mercedes-Benz unit will fall this year, lowering a previous target of matching the 2011 figure. Porsche AG (PAH3), another German automaker, plans to build fewer than the 155,000 cars and sport-utility vehicles originally planned for next year.

Investor Confidence
Still, German exports to faster-growing markets outside Europe and domestic spending are helping to insulate the economy from the debt crisis. The ECB’s bond-purchase plan has also boosted financial markets and helped ease concerns about the severity of the economic slowdown.

German investor confidence rose for the first time in five months in September and gauges of activity in the manufacturing and services industries rose more than economists forecast.

Schaeffler AG, the roller-bearing maker that’s the biggest shareholder in car-parts manufacturer Continental AG, said last month it’s sticking to forecasts for 2012 after demand from outside Europe helped second-quarter sales to rise.

“There is a feeling that progress has been made and that we’ve passed the low point,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “That gives hope for the months to come.”

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