A sharp deterioration in German business confidence due to increasing caution among companies, cast doubt about the ability of the economy to recover strongly even in the second quarter.
The business confidence index fell more-than-expected to 104.4 in April from 106.7 in March, survey conducted by the Ifo Institute among 7,000 firms revealed Wednesday. The indicator dropped for the second consecutive month. Economists had forecast the index to decline to 106.2.
Within the confidence index, the expectations sub-index declined to 101.6 from 103.6 in March. It was forecast to drop to 103.
Although the majority of companies assessed their current business situation as good, they were far more cautious than last month. The corresponding index fell to 107.2 from 109.9 in the previous month. The index was forecast to drop to 109.5.
The full impact of the Cyprus bailout and new concerns about global growth have led to a clear downward revision of German business expectations, ING Bank NV's economist Carsten Brzeski said.
Today's Ifo survey signals trouble ahead for the Eurozone's biggest economy, Brzeski noted. If this trend continues, pressure could build on the German government to consider fiscal stimulus.
Coming a day after a survey by Markit Economics revealed the first decline in German private sector activity since November, the weak Ifo reading adds to expectations for an interest rate cut by the European Central Bank next week.
In its monthly report earlier this week, the Bundesbank said the German economy is poised to pick up in the second quarter. The leading German economic institutes trimmed their 2013 outlook to 0.8 percent from 1 percent, but they see an upward tendency re-emerging.
The International Monetary Fund forecast a bit more weaker growth for Germany. It projects only 0.6 percent expansion for the powerhouse of Eurozone.
In manufacturing, business climate weakened as manufacturers were less satisfied with their current situation and outlook got clouded once again.
The last month's sharp decline in wholesaling continued in April. Wholesalers expressed far greater pessimism about both their current business situation and their business outlook.
On the other hand, the business climate index only edged down slightly in the retail sector. Retailers were somewhat more satisfied with their current business situation. However, they expressed greater pessimism about their future business developments.
After hitting a historical high last month, business situation in construction declined in April. Construction companies assessed their current business situation slightly less positively. They also lowered their expectations with regard to future business developments.
The survey data showed that the business climate indicator for the German service sector fell sharply to 12.4 in April from 20.4 in March.
by RTT Staff Writer
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