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Economy in Brief

Business Sentiment in Germany Falls:  Euro the Culprit?
by Louise Curley January 20, 2004

Business confidence is beginning to falter in Germany and in other countries of the Euro-zone. Earlier this month, it was reported that business confidence in December, while it improved slightly in the construction sector, declined in the industrial and retail sectors of the Euro-zone, as a whole.

The latest indicator of confidence is the ZEW measure of sentiment among German investors and analysts, just released. The measure shows a drop to 72.9 in January from 73.4 in December. The ZEW measure frequently foreshadows movements in the broader business measure of business expectations published by the IFO (Institute for Economic Research, Munich).

The rise in the Euro has, to date, not had much impact on actual economic activity, but it has raised fears of future damage to exports and the recovery itself. It may be these fears that are beginning to erode confidence. It should be noted, however, that business confidence remains strong and is near historical highs.

Measures of Confidence in Germany and the Euro-zone Jan 04  Dec 03 Nov 03 Dec 02/
Jan 03
M/M 
%
Y/Y 
%
2003 2002 2001
Germany                  
  ZEW 72.9 73.4 67.2 14.0 -0.5 58.9 38.4 45.3 2.8
  IFO Business expectations   111.0 108.7 97.7 2.12 13.61 101.7 101.0 94.7
Euro-zone                   
  Industrial business   -8 -6 -10 -2 +2 -10 -11 -9
  Retail business   -13 -10 -16 -3 +3 -14 -16 -7
  Construction business   -19 -20 -21 +1 +2 -21 -14 -11
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