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Business Confidence in Germany Drops to Two-Year Low

The EU's largest economy is wavering. August factory orders were at their lowest levels since August 2009

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This article originally appeared at RT

Business confidence in Germany, the EU’s largest economy, declined for a sixth consecutive month in October. The data is ominous for the eurozone on a whole, which is failing to grow, and may dip back into recession by the end of the year.

<figcaption>The German economy has been crucial in leading the EU economic revival over the last year, but is expected to contract in the second half of 2014</figcaption>
The German economy has been crucial in leading the EU economic revival over the last year, but is expected to contract in the second half of 2014

Germany’s Ifo Business Climate Index in manufacturing, which looks at the confidence of the country’s 7,000 firms, fell to 103.2 in October from 104.7 in September, the lowest result since December 2012.

"Expectations with regard to the six-month business outlook continued to cloud over. The outlook for the German economy deteriorated once again," the President of Ifo, Hans-Werner Sinn, said.

Bad news for the German economy is bad news for the rest of Europe. At $1.5 trillion, Germany accounts for nearly 30 percent of the gross domestic product of the entire 18-member eurozone.

The German economy has been crucial in leading the EU economic revival over the last year, but is expected to again contract in the second half of the year. In the first quarter the economy grew 0.2 percent after it grew 0.7 percent in the first quarter. Third quarter results will be released by Germany’s statistic office on November 14.

The standoff with Russia over Ukraine may be a big factor in the downturn, since Russia is Germany’s largest export market.

As a result, German industry has been struggling; August factory orders fell to their lowest levels since August 2009, before the financial crisis hit Europe.

Consumer confidence also is on the decline as unemployment continues to climb for the second consecutive month.

On Sunday, the European Central Bank (ECB) gave an overall green light to the majority of large banks in the eurozone in a “stress test” audit. Only 25 out of 123 failed the balance sheet test. Only one out of 24 German banks failed the test. The ECB showed that Münchener Hypothekenbank had a €229 million shortfall to deal with a recession scenario at the end of 2013. Since then the bank has raised €408 million which is enough for it not to have to re-jig its plan for the ECB.

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