– Adds Sector Breakdown

Jul MNI analysts survey Jun May
median range
————————————————————————
Business sentiment: 103.3 104.5 103.0 – 105.3 105.2 106.9
Current conditions 111.6 113.0 111.5 – 113.9 113.9 113.2
Six-month outlook: 95.6 96.1 95.3 – 97.3 97.2 100.8
—

FRANKFURT (MNI) – German business confidence eroded more than
generally expected in July to its lowest level since early 2010, as
firms adjusted downward their assessment of both the current situation
and the near-term outlook, the Ifo institute reported on Wednesday.

Taking into account the 0.1 point revision to June’s reading,
July’s 1.9-point drop brought the headline figure to 103.3, a 28-month
low.

“The euro crisis is having an increasingly negative impact on the
German economy,” said Ifo President Hans-Werner Sinn in a press release.

After a recovery in June, the current conditions component fell
back 2.3 points to 111.6, its worst result since June 2010. Expectations
also retreated further, slipping 1.6 points to a 37-month low of 95.6.

Manufacturing sentiment continued to trend downward in July,
falling 6.7 points to -1.9, with respondents gloomier on both the
current situation and the six-month outlook.

Sentiment in the trade sectors went in opposite directions.
Retailers were more optimistic towards both their current situation and
the six-month outlook, lifting the overall confidence figure 4.8 points
to +5.1.

On the other hand, wholesalers’ morale fell 1.1 points to +3.9, as
growing pessimism for the future offset the improvement in the current
business situation.

After a modest recovery in June, sentiment in the construction
sector fell back two points to -6.7, an eight-month low. “While
assessments of the current business situation improved slightly, the
construction firms surveyed are considerably more sceptical about future
business developments,” Sinn noted.

Service sector morale also lost further ground in July, dropping
5.6 points to 15.7, due mainly to a sharp erosion in expectations.
Service providers’ “employment plans, however, remain slightly
expansionary,” Sinn said.

The erosion in business confidence comes on the heels of the sixth
consecutive fall in Germany’s composite PMI to its lowest level (47.3)
in over three years.

“A solid overall drop in output during July represents the worst
start to any quarter since Q2 2009,” said Markit Economics senior
economist Tim Moore. “Moreover, an accelerated decline in new work means
that the stage could well be set for a steeper drop in GDP than the 0.2%
fall recorded at the end of 2011.”

This month’s ZEW survey of analysts also revealed growing pessimism
about Germany’s prospects six months ahead. Still, ZEW President
Wolfgang Franz saw a silver lining in the clouds, as the decline in
sentiment has slowed markedly: “This could possibly be an early sign of
an encouraging development in 2013.”

“However, risks should not be underestimated,” Franz warned.
“Besides the weak demand from the Eurozone for German exports, the
German economy is also burdened by weakening growth dynamics in other
important partner countries.”

The Bundesbank is also cautious in its assessment, noting the
“great uncertainty” characterizing the economic outlook.

With household demand still relatively strong, the DIW research
institute sees Germany averting recession this year, though it expects a
significant pick-up in exports only at the end of 2012. “The crisis in
the Eurozone is weighing more heavily on the German economy than
previously expected,” it said.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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