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German business confidence drops for 3rd month in a row amid Ukraine, Middle East concerns

BERLIN - German business confidence fell for a third consecutive month amid ongoing concerns about the economic impact of the crises in Ukraine and the Middle East, though consumer confidence in Europe's largest economy remained robust, surveys showed Friday.

The Ifo institute said its closely watched business confidence index, based on responses from some 7,000 companies, fell to 108 points in July from 109.7 points in June. It was a worse showing than economists had expected.

Businesses' assessment of their current situation and of the outlook for the next six months both fell.

Andreas Rees, an economist at UniCredit, pointed to uncertainty over "what all the recent events could mean for exports and domestic demand," despite Russia's relatively small share of German trade. But he cautioned against overinterpreting the Ifo index's third straight decline, arguing that "a collapse or anything similarly dramatic is not in the pipeline."

Separately, the GfK research institute said its forward-looking survey of German consumer confidence showed a slight improvement, rising to 9 points for August from 8.9 in July.

"Despite the escalation in the situations in Israel and Ukraine, German consumers continue to be exceedingly optimistic this summer," GfK said in a statement. It noted, however, that its most recent poll of some 2,000 people was conducted before the downing of Malaysia Airlines flight 17 in eastern Ukraine.

Germans' economic outlook remained good, GfK said, with consumers' income expectations rising to the highest value the institute has recorded since German reunification. However, their willingness to buy declined after being bolstered the previous month by the European Central Bank's decision to cut its benchmark interest rate to a record low of 0.15 per cent.

The Canadian Press

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