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German business morale falls over worries of strong euro

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BERLIN (Reuters) – German business confidence fell more than expected in February while remaining at a high level, a survey showed yesterday, suggesting that Europe’s biggest economy is set for solid growth despite a stronger euro clouding the outlook of exporters.

The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, fell to a 5-month low of 115.4 from 117.6 in January.

The February reading undershot expectations in a Reuters consensus forecast of analysts who had forecast a dip to 117.0.

Ifo chief Clemens Fuest said companies were less satisfied with their current business situation, but the indicator still was at its second-highest level since 1991.

“This signals economic growth of 0.7 percent in the first quarter,” Mr Fuest said. In the final three months of 2017, the economy expanded by 0.6 percent on the quarter.

This upbeat growth outlook was also mirrored in the finance ministry’s monthly report released earlier yesterday which said recent data was pointing to a continuation of the economic upswing at the beginning of the year.

In another sign of the overall robust state of the euro zone economy, French industry morale in February edged down only slightly from a more than 17-year high reached in the previous month, data showed yesterday.

The drop in the German headline figure was mainly caused by managers scaling back their business expectations for the next six months, with the respective sub-index falling to a 10-month low.

“The export euphoria is flattening out a bit,” Ifo economist Klaus Wohlrabe told Reuters. He said some exporters were more concerned now about the stronger euro exchange rate which makes German products more expansive for clients outside the bloc.

Mr Wohlrabe added that the fall in the business sentiment index did not mark the beginning of a fundamental shift.

“I would not yet speak of a change in the underlying trend, the German economy is still doing very well, but some of the steam has been let off,” Mr Wohlrabe said.

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