Business Climate Worsens In August
The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, dropped to a three-year low of 94.8 from 97.5 in July. Ifo's gauge of business expectations dropped to 87, the lowest since February 1993, when Germany was experiencing the worst recession of the past two decades. A measure of current conditions eased to 103.2 from 105.7.
"The German economy is encountering an increasingly more difficult situation,"
Ifo President Hans-Werner Sinn
Consumer Confidence Down Again
At the same time GfK AG's consumer sentiment reading slumped to its lowest level in five years. GfK AG's index for September, based on a survey of about 2,000 people, fell to 1.5, the lowest since June 2003, from a revised 1.9 in August, the Nuremberg-based market-research company said in a statement today.
GfK's sub-index measuring economic expectations plunged to minus 21.8 from minus 8. A measure of consumers' propensity to spend fell to minus 27.9 from minus 26.2 while a gauge of income expectations improved to minus 16.8 from minus 20.
Subdued economic prospects and the expectation of additional price hikes continued to depress consumer sentiment in August. While income expectations recovered slightly from the marked downturn in the prior month, economic expectations were dampened further. The propensity to buy, which in a long-term comparison has been far below average for many months, recorded a further slight reduction.
GFK Press Release
Second Quarter GDP Contraction Confirmed
Further detailed data released today by the Federal Statistics Office confirmed that the German economy contracted in the second quarter, while all the short term indicators we are now receiving seem to suggest that it may fail to grow in the third quarter as well. While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, putting pressure on consumer spending power and just as the slowdown in Southern European economies like Spain and Italy start to weigh heavily on German exports.
The economy contracted 0.5 percent in the three months through June as construction dropped back sharply and companies and households reduced spending, the Federal Statistics Office confirmed today.
Building investment dropped 3.5 percent from the previous quarter, investment in plant and machinery fell 0.5 percent and consumer spending decreased 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the office said, confirming an estimate from Aug. 14. That's the biggest drop since the second quarter of 1998.
German exports fell 0.2 percent in the second quarter from the previous three months, when they rose 2.1 percent, today's report showed. However imports dropped even further (due to the weak domestic consumer demand) - by 1.3 percent from the first quarter (when they increased by 3.2 percent). Ironically, despite the deterioration in the export situation, the net impact of trade on GDP was positive (0.4 percentage points) due to the sharp drop`in imports. This result is even stranger than it seems at first sight, since the strong imports in the first quarter meant that trade was in fact a negative for GDP (minus 0.3 percentage points) despite the relatively stronger earlier export performance.
According to the most recent PMIs for Germany the manufacturing sector barely expanded in August:
although services fared a little bettercoming in at 53.1, which was slightly up from July's 52.1.
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