German Business Confidence Hits New Downturn

28 March 2003

New survey results from the influential Ifo institute are causing fresh concern over the health of the German economy.

The body’s closely watched monthly business conditions index for western Germany registered a surprise fall in March from 88.9 to 88.1. The dip follows two months of recovery from December’s ten-month nadir of 87.3.

Worst hit was the assessment of future conditions, which slid from 98.4 to 97.2.

There was little joy in eastern Germany either, with the Ifo index for this region dropping from 102.0 to 100.8.

German chancellor Gerhard Schröder was quick to blame conflict in Iraq. “It’s not surprising that the Ifo index hasn’t made great leaps in the current situation … the situation is of course marked by the Iraq war; how else could it be?”

However, there may be other factors at work – not least because 80% of responses to the survey were returned before war broke out. Also, the nature of the drop in confidence is not consistent with Schröder’s claim. Manufacturing and wholesaling performed particularly badly, while retail and construction both improved. “If the Iraq crisis was a significant factor, then we would have expected the retail sector to fare worse,” commented Capital Economics analyst Paul Ashworth.

Data sourced from: Times Online (UK); additional content by WARC staff