German outlook dims as business confidence hits 14-month low

Frankfurt

Clouds loomed over the German economy on Tuesday as business confidence in Europe’s economic powerhouse fell to its lowest level in over a year.
According to the closely-watched business climate index calculated every month by the Ifo economic institute, business sentiment slumped to its lowest level since December 2014 in February.
The index fell to 105.7 points in the third consecutive monthly decline and the sharpest drop since October 2014.
“The majority of companies were pessimistic about their business outlook for the first time in over six months,” said Ifo, with manufacturers in particular voicing deep concerns. “Manufacturers’ business expectations declined steeply, marking their largest downswing since November 2008,” Ifo said. “With production levels falling at the end of 2015, manufacturers fear that the downturn will continue,” it added. Official data had shown production declining in December as domestic and eurozone demand for German-made
goods fell.
Financial market shock
But analysts said the latest Ifo reading also showed that Germany’s powerful export industry was starting to wake up to global concerns roiling international markets.
“We think that business managers were hit by a financial market shock in the form of the latest turbulence on international equity markets,” said UniCredit economist Andreas Rees.
“Furthermore, the risk of a Schengen break-up may have increasingly been noticed by German exporters,” he said.
“Tighter border controls may lead to disruptions and higher costs,” Rees said.
The day before, a study by the Prognos institute estimated that ending Europe’s open-borders Schengen agreement would cost EU economies at least 470 billion euros ($520 billion) over a decade.
Rees said that while the economic fundamentals were solid, he had “to acknowledge the increasing downside risks which emerged recently.