It seems that the Eurozone debt crisis has finally started crushing the backbone of the strongest economy in the region – Germany. A closely watched survey by Ifo shows that the German business confidence has declined more than expected in August. The index for August is down to 102.3 points from 103.2 in July, against analysts’ expectation of 102.6 points. The GDP of Germany grew 0.3 percent during the second quarter.
The German economy has done much better, when other countries in the Eurozone are struggling, due to high debt ratio and recession. But, falling demand from the European trading partners continues to weaken German exports. Unfortunately, demands from the emerging Asian economies are also declining, as they are also affected by the US and European economic downturn.
The Ifo surveyed 7,000 businesses in Germany to know their views on the current economic conditions and their expectations for the next two quarters. Businesses across several sectors have gloomy expectations for the future.
“Enterprises are increasingly pessimistic about their business development,” said Hans-Werner Sinn, the president of Ifo. “The German economy is weakening further.” So far, the German economy was growing with the help of exports to Asia and the US, and low unemployment rates. But it may not be enough to outweigh the troubles posed by the Eurozone crisis. Many German companies, including Opel and Thyssenkrupp, have announced plans to cut the working hours due to weaker demands in the international market.
“Exports and domestic consumption have shielded the German economy against the euro crisis virus up to now,” wrote ING analyst Carsten Brzeski. “This immunity, however, has been crumbling away quickly over recent months. As a consequence, it looks as if the German economy will, at best, be treading water in the coming months.”
The crisis is hitting the other strong countries as well. The mortgage debt has become a major problem for Netherlands.