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Ifo business confidence hits rock bottom
Photo: DPA

Ifo business confidence hits rock bottom

Published on: 25 Mar 2009 11:10 CET

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After quizzing 7,000 German companies in manufacturing, construction, wholesaling and retail, the Ifo institute said its monthly business confidence index fell again in March.

"Firms have reported a further worsening of their current business situation," the institute said in a statement. "An economic turning point has not yet been reached, in the opinion of the survey participants."

The index fell to 82.1 points from February's reading of 82.6, which itself was a record low. A sub index that measures the current business situation dropped to 82.7 points from 84.3 in the previous month.

"The situation in the German economy is and remains tough. Today's reading is the worst since reunification (in 1990) and represents the fifth straight fall," said Thilo Heidrich, an economist at Germany's Postbank.

Germany relies heavily on exports, but a sharp deterioration of the global economy has dealt a sucker punch to demand for its cars, machines and chemicals.

The country hit the skids last year, entering a technical recession - two successive three-month periods of economic contraction - in the third quarter of 2008.

This year Berlin is forecasting output will fall 2.25 percent, but the government was reported this week to be tearing up its predictions and pencilling in a slump of between 4.0 and 4.5 percent.

Some analysts are even gloomier, with Germany's second biggest bank Commerzbank saying the economy could shrink as much as seven percent. A new government estimate is due out next month.

So far, big German industrial firms have steered clear of cutting permanent staff, preferring instead to lay off temporary workers and tapping a government-financed scheme to cut working hours. But steelmaker ThyssenKrupp is reportedly about to break ranks and add thousands of people to the growing lines of unemployed, creating a political headache ahead of September elections and further undermining public finances.

German firms unveil bad news almost on a daily basis - on Wednesday it was the turn of chemicals giant BASF and tourism and shipping group TUI - and the head the labour office said this week that unemployment could hit four million.

But the Ifo survey also offered a glimmer of hope. A sub-index on managers' predictions for the next half-year inched higher in March - for the third month in a row.

Economists at UBS said that overall the Ifo survey was "good news," with the pattern - rising expectations and falling current conditions - typical for an end being in sight.

The survey "broadly confirmed our overall impression, i.e. that lead indicators are about to stabilise and signalling that we are close to the trough of the economic cycle," UBS economist Martin Lueck said.

Alexander Koch at UniCredit was not so sure, however. "The rate of decline probably will decelerate in the coming months, but Germany remains stuck in recession," he said.

Another German indicator last week - the ZEW survey of investors - also raised hopes among some analysts that dim light could be glimpsed at the end of the tunnel.