German business morale dips, Japan worries weigh

BERLIN - German business confidence eased only slightly in March, although the prospect of higher interest rates and concern over the impact of Japan’s earthquake has given firms pause for thought, a survey showed on Friday.

By (Reuters)

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Published: Fri 25 Mar 2011, 6:46 PM

Last updated: Tue 7 Apr 2015, 5:01 AM

The closely-watched report by Munich’s Ifo think tank on Friday showed its business climate index, based on a monthly survey of some 7,000 firms, inched down to 111.1, compared with a forecast in a Reuters poll for a drop to 110.5.

The euro ticked up in response as investors read the survey as showing Germany’s economic upturn was continuing unabated, adding to the case for a first rise in euro zone interest rates that may come as early as next month.

Ifo said the survey’s results were dented by its forward-looking expectations component and the fact that half of the survey’s responses came in after the disaster at Japan’s Fukushima nuclear plant began to unfold.

Analysts said there may be some worries about orders to and from Japan in the near-term, although sales there are only a tiny proportion of German exports and the concern was likely chiefly about the broad impact on the global economy.

Ifo’s expectations index fell to 106.5 from 107.9 in February.

“The relatively slight fall is noticeably linked to Japan and other uncertainty factors such as the situation in North Africa or the Middle East,” Ifo economist Klaus Abberger said.

“Japan will not have a lasting effect on the world economy. Some companies have been affected and some supply chains have broken down. But the global economy will not take an entirely different course because of it

Rate rise

Germany has recovered faster than expected from a recession in 2009 that was its deepest since World War Two, and by the fourth quarter of last year its economy was growing by 4 percent year-on-year.

That growth is at the heart of the case for a rise in European Central Bank rates which would come at a time when other euro zone member economies are struggling with a sovereign debt crisis and slashing public spending in response.

The prospect of a rise in the cost of companies’ borrowing fed into the slight worsening of sentiment, but Ifo economist Klaus Abberger said German companies are well-placed to cope with both higher rates and a higher oil price.

“The shocks in Japan, North Africa/Mideast and the euro crisis — have been largely psychological,” said Citigroup economist Juergen Michels. “The real effects on the German economy appear to be limited so far.”

Other data showed that lending to consumers and companies in the euro zone picked up speed in February, with business borrowing up 16 billion euros on the month.

Germany’s trade figures for January registered a slight hiccup in exports but they also showed appetite for goods from abroad grew more than expected, suggesting strong domestic demand.

Domestic demand also fuelled a stronger-than-expected rise in German industrial orders in January, and output bounced back from a plunge caused by icy winter weather late last year.

“Today’s Ifo marginal drop is no reason to get petrified,” said ING’s Carsten Brzeski. “The economy is slipping on oil but is not tumbling. The fundamentals of the German economy are strong enough to withstand some setbacks.”

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