Global winds chill business optimism in Europe

AP News
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Posted: Feb 23, 2016 6:57 AM
Global winds chill business optimism in Europe

FRANKFURT, Germany (AP) — Business confidence fell in Germany and France this month, increasing concern that global market turmoil may be weighing on the economy of the 19-member euro currency union.

Germany's closely watched Ifo confidence index fell to 105.7 points in February from 107.3 last month, the third decline in a row. France's INSEE index dropped to 100 points in February from 102 in January.

The data released Tuesday bolsters the argument for the European Central Bank to expand its monetary stimulus efforts at its next meeting March 10.

The central bank is currently pumping 60 billion euros ($66 billion) per month in freshly printed money into the financial system through bond purchases in an attempt to push up weak inflation and support a modest recovery. The eurozone grew 0.3 percent in the last three months of last year; unemployment remains high at 10.4 percent.

In Germany, the eurozone's largest economy, business executives' view of current conditions improved but their outlook for the next half-year worsened significantly.

Economist Carsten Brzeski at ING-DiBa called the reading a "wake-up call."

"Global events have finally reached German companies' boardrooms," he wrote in an email research note.

The euro's exchange rate fell below the $1.10 mark, to $1.0993 from around $1.1040.

The German survey indicated executives share worries about the global economy that have sent financial markets lower recently. China's economy is slowing down, with unpredictable consequences for the rest of the world, while low oil and commodity prices have hit emerging market economies that supply much of the world's growth these days. Financial market turmoil itself could have an impact by making businesses cautious about risking more investment in production.

The Ifo index is valued as a guide to where the economy is headed. The survey is based on monthly responses from about 7,000 firms.

Germany, the biggest economy in the 19-country euro currency union, is enjoying low unemployment of 4.5 percent and steady growth of 0.3 percent in the fourth quarter of last year. While exports have slowed, spending by consumers and the government has picked up.

The French confidence index slipped due to declining confidence among retailers. Manufacturing held up, suggesting global headwinds were not yet severely affecting the country's gradual recovery.

Analyst Chantana Sam at HSBC Global Research said the fall in retail confidence could suggest that the impact from the terror attacks that left 130 people dead in November was lingering more than expected. Retail confidence remains below the level seen before the attacks.

Analysts say the ECB could try to help the economy by increasing its bond-buying stimulus program. It could also cut the interest rate on deposits it takes from commercial banks, currently minus 0.3 percent. The negative rate is a drastic step aimed at pushing banks to lend money rather than let it pile up at the central bank's super-safe overnight deposit facility. The negative rate has also helped push the euro lower against other currencies, helping exporters.

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Moulson contributed from Berlin.