Strong euro hits German confidence
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German manufacturers are wary of the impact a strong euro will have on exports.
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BERLIN, Germany -- Business confidence, Germany's most closely-watched barometer -- has taken a surprise dip as the strong euro dampened expectations for export growth.
The Ifo business climate index fell in February for the first time in 10 months despite forecasts for a slight rise.
Ifo said the index fell to 96.4 from 97.5 as companies' expectations about future business fell to the lowest level since October, offsetting a slight rise in their assessment of the current situation.
It was the first drop in the index since April 2003.
Economists had predicted the index would edge higher to 97.6.
The monthly survey of 7,000 firms found their assessment of the current situation rose slightly to the highest level since July 2001 but this was not enough to offset a more downbeat outlook among manufacturers and wholesalers.
The current situation component edged up to 92.6 from 92.5, but expectations fell to 100.4 from 102.9.
"The unfavorable development occurred mainly in wholesaling and manufacturing, where both the business situation and the expectations worsened,'' Ifo said.
"In construction, the business climate deteriorated only slightly, and it improved in retailing,'' it added.
"The slight decline in the business climate with a still unsatisfactory business situation is a small warning sign for the economic recovery,'' Ifo President Hans-Werner Sinn said in a statement.
Ifo said the strong euro had dented manufacturers' expectations for exports, adding that it is important to "keep the exchange rate under control.''
"It's no surprise that the expectations component fell but the meagre rise in the current conditions index shows that this recovery is lagging behind expectations," Rainer Sartoris, an economist at HSBC Trinkaus, told Reuters.
"It fits in with our forecast of a slight upturn during the first half of 2004 followed by a slowdown setting in during the second half," he said.
"We're seeing the effects of the euro's appreciation, and consumer spending is stagnant. We need consumer spending to pick up to keep this upturn going.''
