German business confidence falls but remains relatively high

Business confidence in Germany fell in July, but not by as much as some economist had expected and it remains at a relatively high level. The largest declines were in manufacturing and retailing. The Ifo institute survey also found company bosses are increasingly pessimistic about the next six months, more so than at any time this year.

However Ifo executive board member Gebhard Flaig said the economic situation is still pointing to a recovery. The business climate index fell to 105.6 from 106.8 in June. That was the highest in the last year and the highest in 15 years. Part of the pessimism about the next six months is because that takes in next January, when value-added tax paid by consumers will rise from 16% to 19%.

In addition, the European Central Bank has signalled that interest rates will likely rise next month. Bank president Jean-Claude Trichet is determined to curb inflation despite fears that euro zone economic growth remains fragile.

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