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Eurozone business confidence slips

Business confidence in the 13-country eurozone, which has soared over the past year, shows signs of peaking, with Germany reporting unchanged levels of optimism while France and Italy saw declines.
/ Source: Financial Times

Business confidence in the 13-country eurozone, which has soared over the past year, shows signs of peaking, with Germany reporting unchanged levels of optimism while France and Italy saw declines.

Germany's closely-watched Ifo business climate index remained unchanged at 108.6 in May – only a whisker lower than the 108.7 record set in December last year, the Munich-based Ifo institute reported. Italian business confidence fell from April's six-year high, while France also saw a correction after three consecutive monthly gains.

The latest data suggest eurozone growth remains strong, justifying further the European Central Bank's plans to raise its main interest rate by another quarter percentage point to 4 per cent next month. However economists saw some slowing in the second half of the year.

Germany's rebound continues to impress and appears to have been hardly knocked off course by a three percentage point rise in value-added-tax at the start of the year. German gross domestic product increased by 0.5 per cent in the first quarter, the country's statistical office has confirmed. A surge in investment offset a 1.4 per cent fall in private consumption caused by the tax increase.

Details of the Ifo survey, based on responses from 7,000 companies in manufacturing, construction, wholesale and retailing, showed business's assessment of export prospects had improved but retailers had become more gloomy. Overall the assessment of current conditions had deteriorated, but expectations about the next six months had improved.

The latest French data suggested the eurozone's second largest economy may have lost some momentum after the election of Nicolas Sarkozy as French president. "Clearly there is no post-election feel good effect," said Dominique Barbet of BNP Paribas in Paris.