German economic recovery 'slowing'

24-08-2006

Germany saw a slight wavering of its continued growth during August but the slowing does not represent a long-term threat, the Centre for Economics and Business Research (CEBR) has said.

Responding to the German Ifo Institute business climate index, which dipped from 105.6 in July to 105.0 in August, the CEBR has described the drop as indicating a "moderate cooling of German growth".

Responsible for the decline are concerns about the European Central Bank's (ECB) recent interest rate rises in response to growing concern about the US property market and other inflationary pressures.

These have damaged Germany's construction, retail and manufacturing sectors, although the CEBR said that the Ifo reports would not have an impact on the markets because today's data was "in line with expectations".

"However the euro may recover from earlier losses if US data on new house sales to be released this afternoon is weak," the CEBR said of Europe's largest single economy.

"The German fiscal data may go largely unnoticed but in the long term, [it] will support European bonds and the euro, particularly if the fiscal improvement continues."

Meanwhile Germany's second quarter GDP growth reached 0.9 per cent, a 0.2 per cent improvement on the first quarter of the year. However consumer spending slipped by 0.4 per cent, surprising given the enormous boost provided by Germany hosting this year's World Cup.

The Euro responded positively to today's data, up 0.34 per cent on the US dollar by 13:00 BST.


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