German September Business Confidence May Fall to Three-Year Low
German business confidence probably declined to the lowest level in more than three years in September as the worsening financial crisis in the U.S. damped the outlook for global economic growth, a survey of economists shows.
The Ifo institute's business climate index declined to 94.3 from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.
Germany's economy, which shrank in the second quarter, is showing few signs of recovery after the yearlong credit squeeze led to bankruptcy and bailouts on Wall Street. The impact on economic growth may be mitigated by oil prices and the euro retreating from records.
“The financial crisis may not affect manufacturers much, but the global economy could become unsettled,'' Holger Schmieding, chief European economist at Bank of America Corp., said in London. “Declining oil prices might prevent the downward move in business sentiment from gathering momentum. We're at the edge of a recession in Germany.''
The Essen-based RWI research institute last week lowered its outlook for German growth next year to 0.7 percent citing weaker export demand and inflation. In June, RWI forecast expansion of 1.5 percent, saying the economy would weather the worst of the U.S. subprime mortgage crisis. RWI also reduced its growth outlook this year to 1.7 percent from 2.2 percent.
Second-quarter gross domestic product fell 0.5 percent.
Worsening Crisis
The German economy may struggle to return to growth in the second half because of the credit crisis. Central banks around the world have injected cash into the financial system after Lehman Brothers Holdings Inc. last week filed for bankruptcy protection and U.S. authorities bailed out American International Group Inc.
Financial institutions worldwide have reported more than $520 billion in losses and writedowns since the lending crisis started. In Germany, the DAX stock benchmark has shed more than a fifth of its value this year.
Josef Ackermann, chief executive officer of Deutsche Bank AG, Germany's largest bank, said before the Lehman Brothers failure that financial markets remain “extremely nervous.'' An economic slowdown “could lead to the next phase of difficulties for financial markets,'' he said cash advance now.
“The world now faces the prospect of a global economic downturn and inevitably these shocks are taking their toll on the euro-area economy,'' European Union Commissioner for Economic and Monetary Affairs Joaquin Almunia said on Sept. 22.
Lower Earnings
In the economy of the 15 euro nations, manufacturing and services contracted for a fourth month in September. The European Commission on Sept. 10 cut its euro-region growth forecast for this year to 1.3 percent from 1.7 percent.
Continental AG, the German tire maker that's being taken over by the Schaeffler Group, earlier this month cut its profit target for fiscal 2008, citing a worsening outlook for sales. Rising raw- material prices curbed demand in the third quarter, the Hanover- based company said.
While crude oil prices have retreated 28 percent from a July 11 record, they're still up 30 percent over the past year. The euro has depreciated 7 percent against the dollar over the past two months. It's up 3.4 percent from a year ago.
Still, German investor confidence rose for a second month in September after oil prices and the euro declined and unemployment fell more than economists expected in August, pushing the jobless rate to the lowest level in 16 years.
Lanxess AG, Germany's largest publicly traded specialty chemicals maker, said on Sept. 17 it will meet its full-year profit goals as faster growth in Asian economies compensates for the U.S. slowdown. The third quarter is “going well,'' Lanxess Chief Executive Officer Axel Heitmann said that day.
European Central Bank on Sept. 4 kept its key rate at 4.25 percent for a second month, suggesting it's more concerned about faster inflation than slowing growth. President Jean-Claude Trichet said that day he still expects the current “episode of weak activity'' to be followed by a “gradual recovery.''
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