German business confidence resumed its drop for a second month in April, adding to signs Europe’s largest economy is struggling to gain momentum. Today’s report showed that IFO business climate slipped to 104.4 from 106.7 a month earlier, compared with forecasts of 106.2. Current assessment gauge also dipped to 107.2 from 109.9 while expectations measure edged down to 101.6 from 103.6. Last month, confidence dropped amid mounting worries from Cyprus which may be heading for a euro area exit that added to worries after a political gridlock in Italy. German investor confidence declined more than economists forecast in April recording a drop to 36.3 from a three-year high of 48.5 in March. German private sector shrank for the first time in five months in April, where a composite of manufacturing and services plunged to 48.8 in April from 50.6 the previous month. The services gauge showed an unexpected contraction of 49.2 this month from the prior expansion of 50.9, whereas manufacturing recorded a widening contraction to 47.9 from the prior of 49.0. However, the Bundesbank’s monthly report for April released this week stated that the German economy will return to growth in the first three months of the year and likely to continue in an upside trend. ‘Generally positive sentiment, the ongoing rise in employment and a recovery in demand for capital goods suggest that the upward trend in the German economy will continue in the second quarter,’ the Bundesbank said. The Bundesbank predicts German gross domestic product to grow 0.4 percent this year, while the ECB expects 0.5 percent contraction for the 17-nation region. ECB President Mario Draghi said this month the ECB will keep monetary policy loose for a while, leaving the door opened in front of possible further easing if economic conditions showed deteriorations. The data signals a continuation to the weak growth pace in the first quarter of 2013 with expectations of recording 0.5% drop this year, yet the economy should recover gradually later in 2013 amid worries that this recovery could be delayed, Draghi said. The EUR/USD traded against at 1.2975, after hitting a low of 1.2955, to continue its drop for a third straight session.
EasyForexNews Research Team