German corporate sentiment weakened more than expected in June, as all sectors of the economy became more pessimistic about business, a closely watched survey showed today.
The Munich-based Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, registered 107.0 after 108.6 in May. The euro fell versus the dollar and European stocks briefly slipped after the Ifo data, while September bund futures jumped to a session high.
Economist, David Brown
"We may be seeing the first signs of cracks appearing in Germany's economic spring," said David Brown, an economist at Bear Stearns International in London.
"The sharp drop in Germany's Ifo business sentiment is a crystal clear message to the European Central Bank (ECB) that they cannot keep sanctioning higher rates with impunity."
Germany's economy grew by 2.8 per cent last year, its best performance in six years, and many leading authorities forecast expansion will match or come close to that in 2007.
"The recovery may well be skating on thin ice, if the ECB continues to keep tightening rates without paying fuller attention to the consequences for growth," said Brown.
A separate Ifo gauge of current conditions fell to 111.4 from 112.5 in May, the institute said. A reading of 112.2 had been forecast. The survey's expectations component fell to 102.8 from 104.8 the previous month. The poll had predicted no change.
Earlier this week, a gauge of investor sentiment on the outlook for the economy unexpectedly fell in June, a survey by the ZEW economic think tank showed. ZEW said analysts were so upbeat about current conditions, there was barely scope for expectations to rise.
In its latest monthly report, the German finance ministry said yesterday the euro's strength against the dollar has damaged the country's export vitality, while Economy Minister Michael Glos said that high oil prices were curbing growth.
Although manufacturing sentiment declined after powering optimism for months, Ifo President Hans-Werner Sinn said firms were still upbeat about export prospects. "There has even been an increase in responses regarding planned personnel expansion," he said in a statement.