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German Businesses Shrug Off Brexit Fears

Britain's vote to leave the EU has had a limited impact on business confidence in Germany, with belief in domestic strength still strong, a key survey showed on Monday.

The closely-watched business confidence index from the Ifo institute in Munich fell to 108.3 points in July from June's figure of 108.7.

July's reading was the first time pollsters had taken the pulse of Europe's biggest economy since the shock British referendum result emerged on June 24.

Falling confidence was due to "far less optimistic business expectations on the part of companies," Ifo head Clemens Fuest said in a statement.

But the result exceeded expectations, as analysts surveyed by Factset had forecast a decline to 107.5 points in July in the wake of the vote.

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months.

The sub-index measuring current business hit 114.7, an increase of 0.2 points over June's reading.

But the figure for companies' future outlook dropped, falling 0.9 points to 102.2.

The Ifo index didn't plunge as sharply as investor sentiment in the ZEW survey released on July 19, buoyed by respondents' faith in domestic demand.

"The German economy proves resilient" in the face of the Brexit shock, Ifo president Fuest said.

There were pessimistic expectations in Germany's mighty car industry -- which exports to Britain and operates factories there -- and among wholesalers.

But retailers and construction firms were looking to the future with continued confidence.

The service sector also offered a brightening outlook, with firms reporting improved expectations for the coming six months and plans to take on more staff.

By 0900 GMT on Monday, Germany's DAX stock market index of 30 leading firms had gained almost one percent on the news.

- Shrugging off fears -

"German businesses do not seem to be extremely shocked by the Brexit vote," economist Carsten Brzeski of ING Diba bank commented on the Ifo figures.

Market watchers shouldn't forget that the Ifo survey's reactions have lagged ground-shaking world events in the past, he added.

A survey in early July of German firms that trade with Britain found that respondents expected exports to the island to tumble by five percent in 2017.

But "given that the UK accounts for around seven percent of all German exports, this damage still looks manageable," Brzeski said.

"Germany is less vulnerable than others to the effects of the vote and we doubt that it will blow the recovery off course," said analyst Jennifer McKeown of Capital Economics.

German business confidence hadn't hit the lows it experienced in early 2016 when companies were concerned about slowing growth in China, she noted.

But "there is a risk that softening business expectations damage growth in the months to come," she went on.

Source: Agence France Presse


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