German business confidence tumbles

German business confidence has tumbled further this month to its lowest level since February 2006, with the global credit squeeze adding to the pressures on Europe’s largest economy.

The Munich-based Ifo institute said its business climate index, which acts as an early indicator of likely trends in economic activity, fell for the fourth consecutive month from 105.8 in August to 104.2.

“The first signs of growth being braked are apparent. Financial market developments may have contributed to that,” said Hans-Werner Sinn, Ifo’s president.

Expectations about the next six months were the gloomiest for almost two years.

The Ifo survey followed last week’s eurozone purchasing managers’ indices showing that the global credit squeeze had inflicted the largest jolt on the 13-country region since the terrorist attacks of September 11 2001.

It will encourage the European Central Bank to maintain its “wait-and-see” stance on interest rate moves – and could fuel financial market speculation that the ECB’s next move will be downwards.

The German BDI employers’ organisation on Tuesday added to concern at the euro’s rise to a record high, although it saw no reason to downgrade its forecasts for economic growth this year.

However, Ifo reported that the euro’s rise had yet to have an impact on exporters. In recent days the currency has risen above $1.41 and has reached record levels on a trade-weighted basis.

Employment growth was also expected to continue, although at a slower pace, the institute added.

The results were consistent with evidence that German economic growth would have slowed even without the recent financial market turbulence, as a result of higher interest rates since the end of 2005 and the steady appreciation of the euro since the beginning of the year.

Details of the Ifo survey showed that German businesses’ assessment of current conditions was the gloomiest since August last year.

Other evidence from the eurozone suggested that the 13-country region entered the global financial market crisis in good shape.

France reported unexpectedly strong consumer spending figures, which rose 1 per cent in August and 0.9 per cent in July, suggesting domestic demand would continue to support growth in the eurozone’s second-largest economy. Meanwhile, Italy reported an unexpected rise in consumer confidence this month.

Survey responses were collected up until Monday, although most were received significantly earlier, Ifo reported.

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