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German Business Confidence Deteriorates On Weak Growth Prospects

German Business Confidence Deteriorates On Weak Growth Prospects
6/22/2012 5:50 AM ET

Germany's business sentiment weakened more than expected in June as future prospects were weighed down by fears of a debt crisis contagion, results of a closely watched survey suggested Friday.

The business confidence index fell to 105.3, the lowest since March 2010, from 106.9 a month ago, survey data from the Munich-based Ifo institute showed. Economists had expected the index to fall to 105.6.

On the other hand, the current assessment index rose unexpectedly to 113.9 from a revised 113.2. The reading was well above the consensus forecast of 112.

Economic expectations deteriorated in June to 97.3 from 100.8 a month ago. The index stayed below the 99.8 level forecast by economists.

The German economy is clearly slowing down and a contraction of the economy in the second quarter looks possible, said ING Bank NV economist Carsten Brzeski. The economist said the German ship is more solid than all other Eurozone ships but latest indicators have been good reminders that even the most solid ship can capsize in a rough thunderstorm.

The Purchasing Managers' survey showed that the manufacturing sector suffered the steepest contraction in three years in June amid a faster decline in new export orders. Overall private sector output also declined at the steepest pace in 36 months.

While manufacturers assess the current business situation as slightly improved, they expressed far greater caution than in the past, the Ifo said. Service providers expressed greater caution in their assessments of both the current business situation and their six-month outlook.

The retailers surveyed assess their current business situation much more positively and are also no longer as pessimistic about future business developments as they were last month. By contrast, fewer wholesalers described their current condition as good and they are more sceptical about their outlook.

In construction sector, current assessment remained unchanged, while firms are more optimistic about their six-month outlook.

by RTT Staff Writer

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