German business confidence fell for a fourth month in five in September, with stagnant consumer spending holding back the pace of growth in Europe's biggest economy. The Munich-based Ifo institute's confidence index, based on a survey of 7,000 companies, declined to 95.2 from 95.3 in August. Economists predicted a reading of 95.1, according to the median of 46 forecasts gathered by Bloomberg. The index touched a three-year high of 97.5 in January.
German companies expect a ``slight weakening'' in global demand, Ifo said. Without exports, Germany's economy wouldn't have grown in the first half. Spending by households, hampered by rising unemployment, barely rose in the second quarter after stagnating or declining in the previous year. ``If we want to have a stable recovery, we really need to see signals from domestic demand and there is still a certain doubt about that,'' Hakan Samuelsson, chief executive-designate of MAN AG, Europe's third-biggest truckmaker, said in an interview. ``The basic mood is now positive, but we need more optimism on a broader scale.'' Ifo, one of Germany's six main research institutes, said an index tracking the assessment of companies' current business rose to 94.8 from 94.7, and a measure of future expectations dropped to 95.7 from a revised 95.9.
`Stable Recovery'
``It looks like we have a stable recovery,'' Ifo economist Gernot Nerb said in an interview. ``There's no indication that it will be more buoyant, but there's no signal that it will slow down, either.'' Germany's economy is forecast by the government to grow between 1.5 percent and 2 percent this year after contracting 0.1 percent in 2003. Germany's benchmark DAX 30 index and the euro held losses after the Ifo report was released. The DAX dropped 38.15 points, or 1 percent, to 3872.75 at 10:07 a.m. in Frankfurt. The euro fell 0.1 percent against the dollar to $1.2258. German exports increased in five of the seven months through July, shoring up the economy as unemployment rose in every month but one. The nation's worst economic performance since World War II in the past three years and Chancellor Gerhard Schroeder's cuts in jobless benefits led to his party's loss in regional elections in North Rhine-Westphalia yesterday.
Oil Price Effect
The 50 percent increase in oil prices this year ``didn't play a large role'' in the decline in the index, said Klaus Abberger, head of Ifo's business survey department, in an interview. Nerb said that should oil prices stay at current levels, ``we would barely see an acceleration in growth.'' ``Global demand has peaked,'' said Rajeev de Mello, who manages the equivalent of $7.4 billion in European bonds at Pictet & Cie in Geneva. ``Oil is definitely putting a dampener on growth in the U.S. and Europe.'' Crude oil futures may rise to $50 a barrel in New York this week as U.S. refineries increase purchases to refill inventories that are close to a 29-year low, according to a Bloomberg News survey of traders and analysts on Friday. MAN, based in Munich, is raising prices next year because of increased raw materials costs.
MAN and Siemens AG are among German companies that still expect higher sales and profit this year. MAN said revenue will rise by between 6 percent and 7 percent this year. Workers at DaimlerChrysler AG, the world's biggest luxury carmaker, and Siemens, Germany's largest engineering company, agreed to longer hours in exchange for job security.
Consumer Reluctance
Tougher work conditions, job losses, rising oil prices and government plans to cut welfare benefits are weighing on consumer spending. Retail sales probably fell 0.3 percent in August from July, according to the median forecast of 25 economists surveyed by Bloomberg. Consumer confidence was probably unchanged, a separate survey of economists showed before a report by Nuremberg- based market research company GfK AG tomorrow. European Central Bank President Jean-Claude Trichet said last week that he expects consumer spending in Europe, which is increasing in France and Spain, to post a ``gradual recovery'' in coming months, though rising oil prices may hurt ``both foreign and domestic demand.'' ``The rise in the price of oil, as we've said many times before, is a risk factor, and not only for economic growth, but also for inflation,'' ECB council member Jaime Caruana told reporters after a conference in Madrid today. ``We have to continue to be vigilant regarding the price of oil.''
ECB Interest Rates
The ECB has left its benchmark interest rate at 2 percent, the lowest in almost six decades, for more than a year. Growth in the euro-region economy slowed to a quarterly 0.5 percent in the second quarter from 0.6 percent in the previous three months. Most investors expect the ECB to wait until the first quarter of next year before following the U.S. Federal Reserve in raising borrowing costs, interest-rate futures trading suggests. The yield on the March Euribor contract was at 2.41 percent at 10:09 a.m. in Frankfurt. It had been as high as 2.82 percent in mid-June. One basis point is 0.01 percentage point. The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's start in 1999. ///www.bloomberg.com