German business optimism resilient after VW scandal

AP News
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Posted: Oct 26, 2015 5:58 AM

FRANKFURT, Germany (AP) — Germany's Ifo index of business optimism fell by less than expected in October, as executives' outlooks for Europe's largest economy remained relatively strong despite worries about a scandal at Volkswagen and troubles in emerging markets.

The index released Monday declined to 108.2 points from 108.5 the month before, the first decline in four months. That was less than the fall to 107.8 expected by financial-market analysts.

Sentiment proved resilient despite the scandal at major automaker Volkswagen, which has admitted equipping cars with software that enabled them to evade U.S. emissions tests. The company faces heavy fines and the possibility of lost sales.

Analyst Carsten Brzeski at ING-DiBa said German businesses did not seem overly worried about possible headwinds from China and emerging markets as well as from Volkswagen.

"One should not interpret too much in a single confidence indicator but today's Ifo reading suggests that the German business community is filing the Volkswagen scandal as a one-off and also shrugs off the risk from a possible Chinese and emerging markets slowdown," Brzeski wrote in a emailed research note.

Germany's export-oriented economy should benefit from the ongoing economic stimulus program from the European Central Bank. The ECB is purchasing 1.1 trillion euros ($1.2 trillion) in bonds with newly created money through September to raise growth and inflation, and has indicated it could expand the program. One side-effect of the stimulus is a lower euro, which helps exporters.

The survey by the Munich-based Ifo institute is based on surveys of 7,000 businesses about their view of current conditions and where the economy is going.