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Further Deterioration In German Business Confidence

James Boston
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Further Deterioration In German Business Confidence

Sentiment in the Eurozone’s largest economy is continuing to deteriorate according to the latest IFO data from Germany this morning. The September numbers show a fall in the headline IFO Business Climate figure from 106.3 to 104.7, the expectation here was for a more moderate drop to around 105.7, this is the fifth straight month that this key indicator has fallen and represents the lowest level of this metric in over a year and a half.

The IFO Current Conditions number now reads at 110.5, this represents a fall from 111.1 last month but came in slightly better than the anticipated 110.2 predicted by the market. Finally, the IFO Expectations number has deteriorated to 99.3 from an August reading of 101.7, this too bettered the anticipated number of 101.2.

The IFO’s chief economist, Klaus Wohlrabe, in a report accompanying these latest figures announced that the German economy is likely to stagnate in the third quarter of this year. Although still predicting full year growth of 1.5% he evidently feels that there is not yet enough momentum in the economy in order to produce this in the current quarter. Pointing to the difficult export environment that Germany is currently facing Wohlrabe cited the general lack of growth in the Eurozone and the effects of economic sanctions on Russia as the primary impediments to confidence within the German business community.

The lack of confidence in the Germany’s commercial sector is a larger problem than the current metrics suggest. A viscous circle can take hold. It is not a case of there just being a pessimistic attitude that will abate when signs of a pick up take hold, it is a very real issue that directly affects the future expansion of German business. Without confidence there is no incentive for businesses or individuals to invest, and without investment continued growth is less probable.

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