German Business Confidence Falls Drags EUR Down

Europe’s largest economy has shown further signs of fragility, as a key indicator of German business confidence fell for a fifth successive month.

The Ifo think tank’s Business Climate Index dropped to 104.7, slightly below analysts’ expectations, and the lowest reading since April last year.

“The German economy is no longer running smoothly,” Ifo said, but added that it still expected gross domestic product (GDP) to grow in 2014.

GDP shrank by 0.2% in the last quarter.

On Monday, Germany’s central bank insisted that the country’s economy remained robust, adding that “the general economic trend should stay positive despite the slowdown in the speed of expansion in the first half of 2014”.

However, monthly Purchasing Managers Index (PMI) figures, released on Tuesday, indicated that Germany’s manufacturing industry expanded in September at the slowest rate in 15 months.

Ifo’s president, Hans-Werner Sinn, also said that his organisation’s report found that “expectations for the next six months hit their lowest level since December 2012”.

The Ifo’s Business Climate Index is based on approximately 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing.

Germany’s economic woes will be of great concern to the eurozone, which is battling persistently low growth and low inflation.

Earlier this month, the European Central Bank introduced new measures to stimulate the area’s flagging economy.

As well as launching an asset purchase programme, through which it will buy debt products from banks, the ECB cut its benchmark interest rate to 0.05%.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza