German Business Confidence Plummets in June

        By Nina Adam
        FRANKFURT--German business confidence deteriorated sharply in June, as companies trimmed their business expectations amid concerns about a Greek debt default and the country's possible exit from the currency area.
        The Ifo think tank said Wednesday that its business climate index dropped to 107.4 in June from 108.5 in May, its lowest level since February. Economists surveyed by The Wall Street Journal had expected a decline to 108.0.
        Officials from Greece and international lenders are meeting in Brussels Wednesday in a last-minute attempt to hammer out a bailout deal for the cash-strapped eurozone country.
        A Greek exit from the eurozone would have "fatal consequences" for Europe and would leave its mark on its largest economy, warned Marcel Fratzscher, the president of the Berlin-based DIW think tank.
        Economists at the DIW on Wednesday lowered their growth expectations for Germany to 1.8% in 2015 from an earlier prediction of 2.2%, citing surprisingly weak industrial production at the start of the year. They predict 1.9% growth in 2016.
        On the face of it, "the German economy looks stronger at the moment than it actually is" as a number of "special factors" are currently supporting the economy, namely a weaker euro and low oil prices, Mr. Fratzscher said.
        Risks associated with a Greek exit are "enormous" and uncertainty about the country's future is already hurting corporate investment here, he said.
        Even so, economists said that the Ifo index for June continues to point to robust economic growth this year. The Ifo think tank only last week raised its German growth forecast for this year to 1.9% from 1.5% previously.
        The roughly 7,000 companies polled by Ifo trimmed their business expectations for the third month running in June, Ifo said, and the deterioration was particularly pronounced in the export-oriented manufacturing sector. Firms' assessment of their current situation was also weaker than in May.
        "We see only limited downside risks to our growth forecast for the overall economy of 1.8% this year. After all, the European Central Bank's key rates are much too low for Germany and supportive for private consumption," said Commerzbank's chief economist Joerg Kraemer.
        Other forward-looking indicators have been sending mixed signals.
        The ZEW indicator of economic expectations slumped to a seven-month low in June, but a purchasing managers survey published Tuesday was surprisingly upbeat.
        Markit's composite purchasing managers index for Germany--a measure of activity in the manufacturing and services sectors-jumped to 54.0 in June from 52.6 in May, a two-month high.
        Every month, the Ifo think tank asks about 7,000 companies in manufacturing, construction, wholesaling and retailing about their business expectations for the next six months and their assessment of the current situation.
        Write to Nina Adam at nina.adam@wsj.com
        (END) Dow Jones Newswires

        June 24, 2015 06:51 ET (10:51 GMT)

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