Storm Clouds Ahead as German Economy Shrinks

28 August 2008

FRANKFURT: Confidence within  Europe's economic powerhouse took a severe battering in August as Germany's consumers and businesses delivered a gloomy forecast for future prospects.

The latest results from the Ifo economics institute's Business Climate Index for August shows a fall to 94.8.from 97.5 the previous month; while a consumer survey by market researcher GfK revealed confidence has dipped to a five-year low.

Meantime, the German government confirmed the economy contracted 0.5% in the second quarter, the result of weak household spending and cutbacks in construction.

A recession, albeit a technical one, is now clearly on the horizon and, warns ING Bank economist Carsten Brzeski: "The German economy is further descending into a maelstrom of economic troubles."

In addition, the slide in consumer confidence bodes ill for retailers, whose hopes for a robust holiday season are hanging by a thread.

Said Herbert Kaempfer, a spokesman for a retailers' association: "High oil and gas prices are massively sucking off purchasing power that is flowing out of the economy."

Data sourced from Wall Street Journal Online; additional content by WARC staff