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German business confidence hits 13-month low: Ifo

Germany's Ifo business confidence index fell to the lowest level for more than a year in August, data showed on Monday, as Europe's biggest economy continues to run out of steam.

FRANKFURT: Germany's Ifo business confidence index fell to the lowest level for more than a year in August, data showed on Monday (Aug 25), as Europe's biggest economy continues to run out of steam. The German economy is merely facing a soft patch, rather than an outright recession, analysts insisted.

The Ifo economic institute's closely watched business climate index fell to 106.3 points in August from 108.0 in July. It was the fourth monthly decline in a row, bringing the index to its lowest level since July 2013.

Companies "were again less satisfied with their current business situation. Also with regard to the further course of business, they are more sceptical than in the previous month," said Ifo president Hans-Werner Sinn. "The German economy is continuing to lose steam."

Ifo calculates its headline index on the basis of companies' assessments of current business and the outlook for the next six months. The sub-index measuring current business slipped to 111.1 points from 112.9 last month. At the same time, the outlook sub-index fell to 101.7 points, the lowest level since May 2013.

Natixis economist Johannes Gareis insisted that the index "is way above its long-term average. "All in all, today's Ifo reading is still consistent with positive growth and, indeed, we expect the German economy to avert falling back into recession in the third quarter. Nevertheless, it is evident that the economy is losing some momentum," Gareis said.

The government, too, remains optimistic in its outlook for Europe's biggest economy, despite a contraction in activity in the second quarter, according to a report in the weekly Der Spiegel. For the whole of 2014, the German economy could even notch up faster growth than the 1.8 per cent it is currently predicting, the magazine said, quoting Finance Minister Wolfgang Schaeuble.

PROTRACTED WEAKNESS

Berenberg Bank economist Christian Schulz said that Germany and the eurozone as a whole "entered a rough patch this summer."

Both the crisis in Ukraine and the disappointing recovery in the eurozone were weighing on confidence and thus investment, Schulz said. "German growth could still recover quickly if the tensions in Eastern Ukraine were to subside. But that remains a distant prospect, suggesting that economic weakness will persist," he concluded.

Commerzbank economist Joerg Kraemer said the continued fall of the Ifo "is really problematic for the rest of the euro area, which is barely growing." The European Central Bank's optimistic economic outlook was "crumbling" and could force the ECB to take further action, Kraemer said.

UniCredit analyst Andreas Rees said that although the Ifo reading "was the lowest level since July 2013, it is still quite impressive by historical standards. However, the recent rapid decline is definitely a reason for concern. Taken at face value, a significant growth deceleration is in the pipeline in coming months."

Nevertheless, while companies have been facing stronger headwinds recently, "it is important not to get carried away by excessive pessimism. Despite all the uncertainty, less dynamic growth and a soft patch in the German economy around the turn of the year seems to be more likely at this stage than further outright declines," Rees said.

The 0.2-per cent contraction in the economy in the second quarter "was not the start of a longer period with outright shrinking economic activity but a one-off," he insisted.