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German Confidence Drops Again

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German business confidence fell once more in September, this time to its lowest level in two and a half years, as growth slowed as well. Economists had expected it to move in the other direction.

Bloomberg reported Monday that the Munich-based Ifo Institute said its business climate index fell from 102.3 in August to 101.4, a level it has not seen since February of 2010. A Bloomberg survey of economists showed that the expectation was for a median increase to 102.5.

Growth and capital investment both dropped as well, with the former decreasing to 0.3% in Q2 from Q1’s 0.5% on lower demand from eurozone countries. That led companies to put off spending money on investments such as plants and machinery—both were down 2.3% in Q2, with an overall decrease of 0.9% in capital investment for the quarter.

“Today’s Ifo index shows that German companies remain skeptical about the economic impact of Mario Draghi’s magic,” Carsten Brzeski said in the report. Brzeski, senior economist at ING Group in Brussels, continued, “Despite fears of a looming eurozone breakup clearly fading away, German businesses are downscaling their expectations. The structural adjustments in Germany’s eurozone trading partners will take time and will dampen demand for German products.”

Investors did not share businessmen’s gloom, however. Their confidence showed an increase in September, the first time in five months that it has done so, and manufacturing and services industries also showed additional stirrings—and at a higher level than economists had predicted.

Exports from Germany to countries outside Europe that are growing at a faster rate, as well as spending from within Germany, are helping to fuel the economy so that it is not so dependent on its eurozone trading partners. There is also hope in the markets based on the bond purchase plan set out by the European Central Bank (ECB).

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


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