German business confidence fell in May, and the manufacturing sector shrank as difficulties in the euro area made firms anxious, threatening to end the isolation of the largest European economies from the problems of monetary union, writes Reuters. The economy of Germany has avoided so far the situation of neighboring countries in Europe, supported by strong exports to other regions of the world and strong domestic demand. The data published Thursday confirmed the initial estimate that the economy grew by 0.5% in the first quarter.
German economic outlook worsened, however, with the escalation of the crisis in the euro area and the open discussion about the possibility that Greece will leave the monetary union. “German companies have awakened to reality: islands of happiness may exist, but there are no such islands in the euro area. In the last few months it seemed that the Ifo Business Climate Index for Germany was a sign for positive growth. The sharp fall of Ifo index today has corrected this picture at once,” said Carsten Brzeski, an analyst at ING in Brussels offices.
Ifo indicator, calculated based on a survey of 7,000 companies, fell from 109.9 points in April to 106.9 points in May. The decrease exceeded the most pessimistic estimates, the first decline since October and the strongest since August. The announcement of the Ifo data pushed the euro to $1.2515, the minimum of 22 months. A subindex that indicates the current situation dropped from 117.5 points to 113.5 points.
The composite indicator Purchasing Managers’ Index (PMI) for manufacturing and services dropped in Germany from 50.5 points in April to 49.6 points in May, according to data released Thursday by the company Markit Economics. For the euro area, PMI index fell from 46.7 points to 45.9 points. It is the fourth consecutive month of decline, and the indicator reached the lowest level since June 2009. Germany had a strong growth during most of the debt crisis. In the first three months, Germany had a GDP advance of 0.5% following 0.2% contraction in the last quarter of 2011.
Recovery from January to March was supported by private consumption, up by 0.4%, and exports, which rose 1.7%. Economic indicators have pointed out, however, possible problems for some time, writes Reuters. Data published last week showed a sharp drop in investor morale in May, ending a series of increases, due to political uncertainties, both in Germany and abroad.
Reply