Weather hits German business confidence

German business

German business confidence has fallen for the first time in nearly a year as the coldest weather in 23 years hit Europe's largest economy.

The Munich-based Ifo institute reported its business climate index slipped from 95.8 in January to 95.2, suggesting that after its early escape from recession last year, Germany's economy was seeing only lacklustre growth or even a contraction at the start of 2010.

Disruption in the construction, retail and leisure industries caused by low temperatures and snow is likely to have set back further an economic turnround that had already shown signs of losing momentum in the final months of last year.

Data from Italy and France didn't fair much better, adding to the eurozone's economic woes with French household spending and Italian consumer confidence both falling sharply at the start of the year, Financial Times reported.

The unexpected reversal of Ifo's upward trend was the result of a deterioration in businesses' assessment of current conditions, which is likely have been hit by the exceptionally severe winter weather. January's temperatures were the lowest since 1987, and much of the country has been covered in snow throughout February.

As well as hitting the construction industry, "consumers apparently preferred to enjoy the snow and the sun in the mountains ... instead of heading for shopping centres," said Alexander Koch at UniCredit in Munich.

Germany's turnaround

Fears that Germany's turnround was being hit by knock-on effects of the crisis over public finances in Greece "seem premature", added Carsten Brzeski at ING.

Purchasing managers' indices last week showed German manufacturing continued to expand this month. Nevertheless, the latest Ifo reading was still consistent with other evidence that the economic recovery across the 16-country eurozone has slowed down, effected by weaker performances in southern Europe.

After the global collapse in economic confidence which followed the failure of Lehman Brothers investment bank in September 2008, Germany's economy was one of the first to return to growth, due to exports.

But the export-led recovery stalled at the end of last year, with domestic demand hit by the phasing out of government subsidies for new car purchases. Earlier this month Axel Weber, Bundesbank president, warned that the bitter winter could mean that GDP in the first quarter of this year remained unchanged or even contracted.

"The economic recovery is expected to continue when winter is over," Ifo president Hans-Werner Sinn said.

Jodie Humphries

Jodie Humphries graduated from Bath Spa University with a BA Hons in Creative Writing in 2008. She has worked for GDS Publishing for the digital group since July 2009. She has previous experience with writing for the web, running her own website since April 2007.

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