Mood Turns Gloomy in Europe's Boardrooms
July 25, 2008
The bigger-than-forecast falls in sentiment among industry leaders in the 15-member euro zone's top three economies, revealed in surveys released Thursday, July 24, came in the wake of a surging euro, spiraling inflation, worries about higher interest rates and slowing global growth.
Business confidence in Germany and France is now at a three-year low with Germany's closely-watched Ifo business confidence index falling from 101.2 in June to 97.5 this month and France's survey of 4,000 industrialists, dropping from 101 last month to 98 in July.
Analysts had predicted that the German business index, which is drawn up by the Munich-based Ifo economic institute, would fall to 100.2 and that the French survey would edge down to 100.
The release of the business confidence indexes for Germany and France coincided with the publication of surveys showing the mood also sinking in the manufacturing sectors of the euro zone's two biggest economies as they entered the third quarter.
Economic upswing coming to an end, say experts
"The data significantly added to the impression that economic growth is slowing at a fast clip," said Peter Possing Anderson from Danske Bank.
Business sentiment in Italy is now at a seven-year low with the downbeat world economic outlook and the global credit crunch helping to fuel recession fears about the euro zone's third biggest economy.
"These results suggest the economic upswing (in Germany) is coming to an end," said Ifo chief Hans-Werner Sinn releasing the latest report, which is based on a survey of 7,000 German executives.
The release of the latest sentiment surveys for the euro zone's three leading economies also coincided with the launch of Europe's latest company reporting season, with businesses already reporting mixed earnings results during the latest quarter.
"The deterioration is evident in all industrial sectors and all around the country," the Rome-based ISAE research institute said releasing the index which declined to 83.5 points. Analysts had predicted a fall to 86.5.
Underscoring the precarious state of the Italian economy, a report released Tuesday showed consumer confidence in the country dropping to a 15-year low.
Euro reaches all-time high against dollar
Speaking Wednesday, German Chancellor Angela Merkel warned that after a strong start to the year, the Europe's biggest economy was facing increasing headwinds and that a "significant fall" in growth was likely next year.
Euro zone factory orders tumbled by 3.5 percent in May, data released Wednesday showed after industrial production in the currency bloc in May chalked up its biggest fall in about 16 years.
Moreover, since the release of the last business confidence surveys, the euro has surged to an all-time high of $1.6038 and oil has raced ahead to a record high of $147.27 a barrel.
The European Central Bank has delivered its first rate hike in more than a year, increasing borrowing costs in the 15-member euro zone by 25 basis points to 4.25 percent early this month to ward off inflationary pressures. Euro zone inflation hit a record 4 percent in June.
In addition, continuing tough talk about the threat posed by inflation from leading ECB officials has helped to fuel speculation that the Frankfurt-based central bank might deliver another rise in the cost of money before the end of year.
However, the dramatic fall in the latest economic sentiment surveys is likely to make it more difficult for the ECB to mount a case for a further tightening.