German and French business sentiment fell unexpectedly in August, especially among manufacturers, a sign the U.K.’s decision to leave the European Union and a series of terrorist attacks unsettled business executives at the height of the holiday season.
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Consumers were more upbeat about their earnings for the next year, with the index for income expectations rising more than eight points to 58.3 – the second-highest level on record. “The German economy has fallen into a summer slump”.
“While consumers are rather reserved about overall economic development in the future, they are downright euphoric about their own financial situations”, the survey said.
Scott Corfe, director of the UK Centre for Economics and Business Research, said: “This month’s improvement in consumer confidence follows positive news from other areas of the economy and slightly punctures the arguments of those who predicted immediate Armageddon following a Brexit vote”.
He based that on business expectations declining the most in sectors with relatively strong ties to the United Kingdom market, with concerns being expressed by executives about future exports.
A sector breakdown showed that the weaker headline figure was driven by deteriorated sentiment in manufacturing, wholesaling and retailing.
In construction, the business climate remained at a record level, while domestic tourism boomed due to geopolitical crises overseas suggesting that the domestic economy is still doing well.
“Today’s Ifo suggests that German businesses have suddenly woken up to Brexit reality”, economist Carsten Brzeski at ING Diba bank said, noting that the index often takes time to respond to global events. “However, without any new structural reforms and investments, it remains a virtuous circle on steroids”, he added.
That points to further expansion in an economy that grew a robust 1.1 per cent in the first half of the year.
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Berlin expects domestic demand to drive overall growth of 1.7 percent this year which would be on a par with last year.
