German business confidence fell more than economists forecast in August, to a three-year low, heightening concern that Europe's largest economy may be slipping into a recession.
The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, fell to 94.8 from 97.5 in July. Economists expected a drop to 97.2, the median of 35 forecasts in a Bloomberg News survey shows.
Germany's economy contracted in the second quarter and may not grow in the third. While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the US housing slump weigh on export demand.
"Business confidence will continue to decline," said Andreas Speer, an economist at Bayerische Landesbank in Munich. "We're in the middle of a slowdown with a high risk of a recession."
The euro dropped more than a cent to $1.4597 after the release and bond yields fell.
The economy contracted 0.5 percent in the three months through June as construction slumped and companies and households reduced spending. Consumer confidence has dropped to the lowest in more than five years, a report from GfK AG showed yesterday.
Significant threat
The German government has maintained its forecast for growth of 1.7 percent this year after 2.5 percent in 2007. Still, the Berlin-based BDB banking association said on Aug. 20 that the economy may barely expand in the second half of the year.
Arcandor AG, Germany's largest department-store operator, on Aug 13 reported a loss for the quarter through June and reduced its 2009 earnings forecast. Daimler AG, the world's second-largest luxury carmaker, said on Aug 6 it plans to cut production by 45,000 vehicles by the end of the year. The Stuttgart-based company had already lowered its full-year earnings forecast.
Manufacturing and service industries in the 15-nation euro region contracted for a third straight month in August and confidence in the economic outlook last month dropped the most since the Sept 11 terrorist attacks in 2001.
"The further development in business confidence will hinge on oil prices," said Sylvain Broyer, an economist at Natixis in Frankfurt. "We may escape a recession in 2008, but the threat for next year is still significant."
Some companies are benefiting from demand in faster-growing economies in Asia and eastern Europe. Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year earnings forecasts on increasing demand for construction and mining work. SAP AG, the world's largest maker of business-management software, last month raised its full-year earnings forecast on increasing orders.
Source:China Daily/Agencies
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