German Economic Confidence Slips Despite Budget Surplus

While Germany's closely watched Ifo business confidence index has edged down to 97.2 points in August from 97.8 points in July, consumer sentiment in the country also fell back again, according to a survey released on Tuesday, Aug. 26.

The Nuremberg-based GfK group said in the report that its forward-looking German consumer confidence index fell from 2.1 points in August to 1.9 in September as surging inflation and on-going economic uncertainty dampened the mood in the nation's households.

Based on a survey of 7,000 German executives, the July Ifo report could set the stage for the release this week of a batch of major economic sentiment surveys highlighting the brittle economic mood taking shape across Europe.

Falling euro, oil prices boost economy

However, like the Ifo index, which is drawn up by the Munich-based Ifo economic institute, the surveys are gained support from the fall in both the euro and oil prices following record highs.

Already the drop in the euro and energy prices has helped to ease some of the pressures facing Europe's biggest economy, with German investor confidence posting a surprise rebound in August, a key indicator released this month showed.

Drawn up by the Mannheim-based Center for European Economic Research, the ZEW index rose 8.4 points to minus 55.5 points this month despite signs of slackening global growth and volatile financial markets.

Analysts had predicted that the index, which measures expectations six months down the track, would fall to minus 62 points in August.

State budget in the black

Also on Tuesday, the Federal Statistical Office reported a budget surplus of 6.7 billion euros for the first half of this year, up from 4.2 billion euros last year. The surplus for 2008 represents 0.5 percent of the country's Gross Domestic Product.

The Federal Statistical Office attributed the extra funds to a jump in national revenue. While income rose by three percent in the first half of the year, spending only rose by 2.5 percent, according to the report.

Germany has had a budget deficit since the reunification in 1990. The government has already predicted a deficit for 2008 as well.