Germany: Business sentiment drops on geopolitical concerns and slowdown in emerging economies
March 25, 2014
The business confidence indicator published by the Ifo Institute fell in March after having reached its highest level in more than two years in February. The indicator came in at 110.7 points, undershooting both the 111.3 points registered in February and the 110.9 points the market had expected. The print marks the first drop following four consecutive months of improvement. March's result reflected that firms' expectations fell notably compared to the previous month. According to the Ifo Institute, “the crisis of the emerging economies and the events in Crimea are impacting the confidence of German firms.” Conversely, firms' assessments of their current business situations improved compared to last month's reading, reaching the highest level in nearly two years. The conflict between the West-specifically the United States and the European Union (EU)-and Russia over the Crimean Peninsula has yet not represented a direct threat to German firms even though the West and Russia have threatened each other with economic sanctions. Nonetheless, the possibility that the conflict may escalate could end up harming the German economy, at least slightly. In 2013 German exports accounted for around 30.0% of all shipments from the EU to Russia. FocusEconomics Consensus Forecast panelists expect gross fixed investment to expand 3.9% in 2014, which is up 0.1 percentage points from last month's forecast. In 2015, the panel sees investment growth accelerating to 4.1%.
Author: Ricardo Aceves, Senior Economist