German Business Confidence Drops for Fifth Month
Bloomberg News
German business confidence fell for a fifth month even after the European Central Bank stepped up plans to revive the faltering euro-area recovery.
The Ifo institute's business climate index, based on a survey of 7,000 executives, dropped to 104.7 in September from 106.3 in August. Economists predicted a decline to 105.8, according to the median of 36 estimates in a Bloomberg survey.
Europe's largest economy contracted in the second quarter and euro-area growth stalled as international political tension and stubbornly high unemployment sapped sentiment. The risks prompted the ECB this month to say it'll be more active in adding stimulus to the euro area by starting asset purchases.
'Ifo has dropped substantially since spring,' said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. 'Drivers of the moderation are the Ukraine conflict and lower growth momentum in the neighboring euro-area countries. Dynamics should stabilize in autumn and provide the way for somewhat better growth prospects again at the end of the year.'
The European Union and the U.S. have ramped up sanctions against Russia, citing its support for separatists in Eastern Ukraine. German Chancellor Angela Merkel said yesterday that industry backing of the restrictions has been crucial and a solution to the conflict is 'far off.' Germany is Russia's biggest EU trading partner.
Production Cutbacks
Munich-based MAN SE, Europe's third-biggest truckmaker, is scaling back production by cutting hours for as many 4,000 workers, partly because of a drop in demand in Russia.
Other data has pointed to weaker growth. A gauge of German manufacturing activity expanded at the slowest pace in 15 months in September as new orders fell, and the ZEW index of investor confidence dropped for a ninth month. While factory orders and industrial production gained in July, the Bundesbank warned that they were boosted by factors such as the dates of school holidays.
Since June, ECB President Mario Draghi has cut interest rates to record lows, offered cheap long-term cash to banks, and pledged to buy asset-backed securities and covered bonds in a bid to revive the euro-area economy.
Consumer prices rose 0.4 percent in August from a year earlier, the weakest pace in almost five years, and unemployment is near a record at 11.5 percent.
Acquisition Spree
Speaking at the European Parliament in Brussels on Sept. 22, Draghi said the ECB is moving to a more 'active and controlled management of our balance sheet' as 'unacceptably high unemployment and continued weak credit growth' pose downside risks to the economy.
To avoid crisis-ridden Europe, German companies are embarking on their biggest-ever acquisition spree in the U.S., chasing deals that promise innovation and growth.
Merck KGaA this week agreed to acquire medical-equipment manufacturer Sigma-Aldrich Corp. for more than $16 billion, in what would be the biggest acquisition in its 346-year history. Siemens AG said it would buy Dresser-Rand Group Inc., a provider of energy equipment based in Houston, for $7.5 billion. In two deals last week, SAP AG (SAP) agreed to buy Concur Technologies Inc. for $7.4 billion, and ZF Friedrichshafen AG bid $11.7 billion for TRW Automotive Holdings Corp.
To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net
To contact the editors responsible for this story: Emma Charlton at echarlton1@bloomberg.net Paul Gordon
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