(Updates with comment from economist in fourth paragraph.)
July 22 (Bloomberg) -- German business confidence fell more than economists forecast in July, according to a survey taken before European leaders agreed new aid for Greece as part of an intensification of measures to stem the region’s debt crisis.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, declined to 112.9, the lowest in nine months, from 114.5 in June. Economists forecast a decline to 113.7, according to the median of 42 estimates in a Bloomberg News survey. The index reached a record high of 115.4 in February.
European leaders announced 159 billion euros ($229 billion) of aid for Greece late yesterday in their latest attempt to stem a 21-month debt crisis that is threatening to engulf Spain and Italy. While investor sentiment in Germany, Europe’s largest economy, dropped more than forecast in July, the country’s economic outlook remains “favorable” as stronger domestic demand compensates for a slowdown in export growth, the Bundesbank said this week.
“The decline is not a drama as economic growth will slow but remain relatively solid in the second and third quarters,” said Holger Sandte, chief economist at WestLB Mellon Asset Management in Dusseldorf, Germany. “The debt crisis is unlikely to cloud the outlook too much.”
Ifo’s gauge of the current situation fell to 121.4 in July from 123.3 in June, while an index measuring executives’ expectations slipped to 105 from a revised reading of 106.2.
The euro was little changed against the dollar after the report was published. It traded at $1.4398 as of 9:29 a.m. in London, down 0.2 percent since yesterday.
Europe’s new financing package for Greece will include a 50 billion-euro contribution from financial institutions through a series of bond exchanges and buybacks that will also cut Greece’s debt load, according to a statement issued in Brussels. The plan will also empower the euro-area’s 440-billion euro rescue fund to buy debt across stressed euro nations, aid troubled banks and offer credit-lines to repel speculators.
In Germany, the jobless rate has fallen to the lowest in two decades and the Bundesbank forecasts that the economy will expand 3.1 percent this year and 1.8 percent in 2012. That would compare with growth of 1.6 percent and 1.8 percent in the euro area, according to European Commission projections in May.
Volkswagen AG, Europe’s biggest carmaker, said July 15 it expects to continue outperforming the auto market in the second half of the year as the Wolfsburg, Germany-based company benefits from growth in emerging markets such as Brazil, Russia, India and China.
At the same time, some companies have signaled concern that austerity measures in euro-area nations and a clouded outlook in the U.S. risk hurting profit growth. A report on July 22 showed Europe’s services and manufacturing industries grew at the slowest pace in almost two years this month.
“While we’re enjoying a lot of success with new models and seeing many markets moving very strongly, we also see some potential risk,” Bayerische Motoren Werke AG’s Marketing Director Ian Robertson said July 14. “Certain economies around the world will go into a more difficult situation.”
German consumer sentiment will rise for the first time in four months in July, Nuremberg-based market research company GfK predicted on June 28. “Good general conditions” have become “more influential than detrimental factors, such as the state of affairs in Greece,” it said.
--With assistance from Kristian Siedenburg in Budapest and Steve Rothwell in London. Editors: Fergal O’Brien, Craig Stirling
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