German business morale tumbles for second month in April

Friday, 26 April 2013 05:16 - - {{hitsCtrl.values.hits}}

BERLIN (Reuters): German business sentiment fell in April for the second consecutive month, missing even the lowest estimate in a Reuters poll and signalling that Europe’s largest economy is struggling to pull away from a contraction at the end of last year.

The Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of some 7,000 firms, fell to 104.4 in April, down from 106.7 in March.

That was short of even the lowest forecast in a Reuters poll in which the median estimate of 45 economists was 106.2.

The survey sent the euro to its lowest in nearly three weeks against the dollar while Bunds edged up briefly.

The German economy long fought off the euro zone crisis that sent much of the rest of the bloc into recession but contracted in the final quarter of 2012. Data now point to it struggling to leave that gloom behind, especially because of weakness in the Chinese economy which had proved a strong alternative market.

“The sharp dip in Germany’s Ifo index marks another nail in the coffin for stronger recovery this year,” said David Brown at New View Economics.

“Based on what we have recently seen from the latest Ifo, ZEW (investor sentiment) and PMI (purchasing managers’ index) business surveys, Germany will be very lucky to avoid a near term recession in the recent two quarters,” he added.

The disappointing Ifo numbers, combined with the PMI survey showing the private sector contracted in April, help build the case for the European Central Bank to cut interest rates at its meeting next week by suggesting that even the region’s growth engine is heading back into contraction.

Announcements from German firms have been largely downbeat of late, with BASF saying it would cut 500 jobs by 2015, Bosch saying sales were subdued between January and March and Daimler reporting its first-quarter profit plunged more than half.

The Ifo survey showed firms were more gloomy about their business outlook, with a sub-index falling to 101.6 from 103.6 in March. They were more pessimistic about current business, with a gauge of current conditions dropping to 107.2 from 109.9.

After a lull of several months, the euro zone crisis flared up again last month with Cyprus’s messy bailout and an inconclusive Italian election weighing on business sentiment.