German business confidence dips amid debt crisis

By MATT MOORE AP Business Writer

BERLIN (AP) - German business confidence slipped marginally in May, it's first such decline since February, as worries about the debt crisis weighed on financial markets and left the euro reeling.

The Ifo Institute said Friday its business climate index fell to 101.5 points from 101.6 points in April on worries by Germany's retailers and wholesalers.

Hans Werner Sinn, president of the Munich-based group, said that the "business climate in retailing and in wholesaling has clouded over somewhat."

The decline, though nominal, was the first time the survey had fallen since February amid a particularly harsh winter that left snow and ice blanketing most, if not all, of Europe's biggest economy.

"Today's Ifo drop did not come as a surprise," said Carsten Brzeski, an analyst with ING Group in Brussels. "It is a correction at a high level, clearly driven by the eurozone's sovereign debt crisis and recent market turmoil."

While the economic malaise spawned by Greece - and the resulting euro750 billion (nearly $1 trillion) planned bailout - weighed heavily, he noted that the euro's drop against the dollar will end up benefiting German businesses, particularly when coupled with the record low 1-percent interest rate that the European Central Bank has steadfastly maintained in its bid to ward off inflation.

"The weaker euro should support the export-driven recovery and low interest rates should save the government some money on its interest rate bill," Brzeski said.

But that's not to say business won't feel pinched.

"Fiscal consolidation will directly and indirectly weigh on the German economy. Be it through weaker demand for German exports or be it through expenditure cuts in Germany," he added.

Looking ahead six months, business expectations also slipped to 103.7 points compared with 104 the month before, but Andreas Rees, chief German economist at UniCredit remarked that it was the "first drop in the forward-looking businesses expectations reading after 16 - repeat 16 - consecutive increases."

Business' expectations for their current situation was marginally improved to 99.4 points in May from 99.3 in April.

That gain was due in part to an improved mood by big ticket-item manufacturers, particularly automakers and steelmakers for whom a falling euro translates into better sales abroad, including the U.S.

Germany is the world's second biggest exporter, trailing only China, and is heavily dependent upon them.

"With regard to business developments in the coming six months, the firms are even more optimistic," Sinn said of manufacturers. "In terms of foreign business, they again expect a more robust revival than previously."

Also Friday, Germany's Federal Statistical Office confirmed that gross domestic product increased by 0.2 percent in the first quarter compared with the previous three-month period.

---

Online:

http://www.ifo.de