European economy: Indicators fall sharply, signalling a slowdown in Germany / Eurozone PMI also falls / Ifo raises growth outlook for Germany

by Eric Culp

Further warning signals from the country's industrial sector continue to raise concerns about the future of Europe's largest economy.

German business confidence unexpectedly fell this month after remaining stable in May, according to a German think tank. Ifo (Munich, www.ifo.de/en) Economists were surprised by the fall in the June expectations index, a guide for the next six months, and by the fact that it remained steady as a slight improvement had been expected.

Ifo results for Germany's plastics sector offered little hope as they all remained in negative territory: the headline figure rose to -13.0 points from -14.4, but outlook for the next six months fell to a three-month low of 15.1, while the current situation figure improved to -10.8, the highest since March.

Ifo said its manufacturing business confidence index eased in June after three consecutive increases. “Businesses are once again skeptical about the coming months, particularly concerned about falling order backlogs, but are somewhat satisfied with current business.”

The think tank said the German economy was “struggling to overcome stagnation”.

Factory activity also remains a concern among German buyers, the survey found. S&P GlobalThe group said its preliminary composite index fell to 50.6 points in June. Since the index starts to show economic contraction just below 50 points, the latest reading suggests there is effectively no growth. “The main drag on the composite index was renewed weakness in manufacturing production, which declined at a solid and accelerating pace after being more or less stable in May,” the group explained.

Eurozone-wide indicators painted a similar picture, with the headline index rising above 50 points as morale still points to growth in the services sector, despite a decline in that sector this month. The euro zone manufacturing index fell to 45.6, its lowest level in six months, the research firm said.

The latest data for Germany and the euro area follows Ifo's revised forecast for growth in Germany, which said last week that German GDP is now expected to grow by 0.4% this year, double its previous forecast, as growth is expected to pick up in the second half of the year.

The think tank expects growth of 1.5 percent next year, unchanged from its previous forecast.