German business confidence fell to the lowest level in nine months in July as the European debt crisis and weakening global demand damped the economic outlook.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, declined to 112.9 from 114.5 in June. Economists forecast a decline to 113.7, according to the median of 42 estimates in a Bloomberg News survey. The index remains close to a record high of 115.4 posted in February.
European leaders announced €159 billion of new aid for Greece late yesterday in their latest attempt to stem a 21-month debt crisis that is threatening to engulf Spain and Italy.
While investor sentiment in Germany, Europe's largest economy, dropped more than forecast in July, the country's economic outlook remains "favourable" as stronger domestic demand compensates for a slowdown in export growth, the Bundesbank said this week.
"The German economy is bound to slow down at some point as it is so strongly linked to international trade," said Frederik Ducrozet, an economist at Credit Agricole SA in Paris. "On the other hand the trend for consumer confidence and retail sales seem to be on a positive trend."
Europe's new financing package for Greece will include a €50 billion contribution from financial institutions through a series of bond exchanges and buybacks that will also cut Greece's debt load, according to a statement issued in Brussels. The plan will also empower the euro-area's €440-billion rescue fund to buy debt across stressed euro nations, aid troubled banks and offer credit-lines to repel speculators.
In Germany, the jobless rate has fallen to the lowest in two decades and the Bundesbank forecasts that the economy will expand 3.1 per cent this year and 1.8 per cent in 2012. That would compare with growth of 1.6 per cent and 1.8 per cent in the euro area, according to European Commission projections in May.
Volkswagen AG, Europe's biggest carmaker, said July 15th it expects to continue outperforming the auto market in the second half of the year as the Wolfsburg, Germany-based company benefits from growth in emerging markets such as Brazil, Russia, India and China.
At the same time, some companies have signalled concern that austerity measures in euro-area
nations and a clouded outlook in the US risk hurting profit growth. A report on July 22nd showed Europe's services and manufacturing industries grew at the slowest pace in almost two years this month.
Bloomberg
