German business confidence drops unexpectedly, survey shows

AP News
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Posted: Aug 25, 2016 10:56 AM
German business confidence drops unexpectedly, survey shows

BERLIN (AP) — Business confidence in Germany, Europe's biggest economy, has dropped unexpectedly as managers' assessment of both their current and future situations darkened following Britain's decision to leave the European Union, a survey showed Thursday.

The Ifo institute's confidence index fell to 106.2 points for August from 108.3 in July. Economists had predicted a slight increase to 108.5.

The sharpest monthly decline in more than four years took the index to its lowest level since December 2014. It follows a much smaller decline in July immediately following Britain's vote to leave the EU.

The Ifo measured a drop in confidence in most sectors it surveyed, though not in construction and services.

Timo Wollmershaeuser, an economic expert with the Ifo, told n-tv television that the last two months' movement "taken together is a mirror image of the Brexit vote."

Economist Carsten Brzeski at ING-DiBa said the decline "suggests that German businesses have suddenly woken up to Brexit reality."

"It is not the first time that the Ifo reacts with a delay of one or two months to global events," he said, though he noted that the German economy remains — for now — in a "virtuous circle."

Official figures released this month showed that the German economy grew 0.4 percent in the second quarter compared with the previous three-month period — a slower pace than its 0.7 percent growth spurt in the first quarter, but double what economists had expected. Unemployment is low and growth has been increasingly fueled by domestic demand.

The Ifo's monthly survey is based on responses from around 7,000 companies in Germany. They are asked to assess their current situation and their outlook for the next six months.