German business confidence slumps, analysts forecast 24/07/2008 00:00

German business confidence slumps in time of economic crisis

Berlin -- German business confidence slumped in July, a key survey to be released Thursday is forecast to show, as a surging euro, spiralling inflation and worries about higher interest rates hit sentiment in Europe's biggest economy.

After falling to 101.3 points in June, Germany's closely watched Ifo business confidence index slipped to 100 this month, analysts predict.

Based on a survey of 7,000 German executives, the July Ifo report could set the stage for the release this week of a batch of major economic sentiment surveys, which are likely to point to a bleaker outlook taking shape across Europe.

A report released on Tuesday showed consumer confidence in Italy dropping to about a 15-year low.

The Ifo's publicaton also comes as Europe's latest company reporting season gets underway with businesses already reporting mixed earnings results during the latest quarter.

Moreover, since the release of the last German business confidence report, which is drawn up by Munich-based Ifo economic institute, the euro has surged to an all-time high of 1.6038 dollars.

Meanwhile, the European Central Bank has delivered its first rate hike in more than a year, increasing borrowing costs in the 15-member eurozone by 25 basis points to 4.25 percent early this month to ward off inflationary pressures.

In addition, continuing tough talk about the threat posed by inflation from leading ECB officials has helped to fuel speculation that the Frankfurt-based bank might deliver another rise in the cost of money before the end of year.

Signs of a more brittle economic and business mood have already started to emerge among German investors.

A key indicator released this month showed German investor confidence plummeting to a record low in July.

Drawn up by the Mannheim-based Centre for European Economic Research, the ZEW index plunged more than forecast to minus 63.9 points.

DPA