The strong euro caused business confidence in Germany to deteriorate noticeably in February in what was a 'small warning signal for economic recovery,' the Ifo economics research institute said today.
The Ifo's so-called business climate index fell for the first time in 10 months in February, declining to 96.4 points this month from 97.5 points in January, Ifo said in a statement. Analysts had been expecting the index - the nearest thing Germany has to an industrial confidence barometer - to remain stable.
'The slight decline in the business climate is a small warning signal for the economic recovery,' said Ifo President Hans-Werner Sinn. 'It is now more important than ever to give investors confidence in the continuation of the reforms and to keep the exchange rate under control,' Sinn said.
For its monthly survey, Ifo polls around 7,000 companies about their assessment of current business and their expectations for the next six months.
A breakdown of the data showed that the current sentiment sub-index edged up to 92.6 points in February from 92.5 points in January. But companies appeared to be a lot less confident about the six-month outlook, with the expectations sub-index sliding to 110.4 points this month from 102.9 points in January.
'The worsening was primarily due to the no longer quite so favourable expectations sub-index, while companies' assessment of their current business situation remained largely unchanged,' Ifo said.
'The unfavourable development occurred mainly in the wholesaling and manufacturing sectors, where both the business situation and expectations worsened,' it continued.
'In the construction sector, the business climate deteriorated only slightly, and it improved in the retailing sector. The strong euro has again had its effect on the export expectations in the manufacturing sector, but despite the weakening the positive responses still prevail,' Ifo said.
