German Business Confidence Fell to a 19-Month Low in September

Sept. 25 (Bloomberg) -- German business confidence fell to a 19-month low in September after the euro's appreciation dimmed the outlook for growth in Europe's largest economy.

The Munich-based Ifo research institute's sentiment index, based on responses from 7,000 executives, fell today to 104.2, the lowest since February 2006, from 105.8 in August. Economists expected a drop to 105, according to the median of 38 forecasts in a Bloomberg News survey.

The euro's climb to a record $1.4130 yesterday threatens to curb exports after the U.S. housing slump roiled financial markets and pushed up the cost of credit. The IW economic institute yesterday cut its forecast for German economic growth next year, citing the euro's strength and market turbulence.

``Companies are growing more cautious on financing conditions and they watch the increase in the euro,'' said Rainer Guntermann, an economist at Dresdner Kleinwort in Frankfurt. ``Sentiment is pointing to an economic slowdown toward year-end.''

The Cologne-based IW predicted German growth will slow to 1.9 percent next year from 2.5 percent in 2007. It previously forecast a 2008 expansion of 2.2 percent. The Brussels-based European Commission on Sept. 11 trimmed its 2007 forecast for the 13-nation euro region to 2.5 percent from 2.6 percent.

German investor confidence fell to a nine-month low this month, the ZEW institute said last week. Europe's manufacturing and service industries expanded at the slowest pace in two years, Royal Bank of Scotland Group Plc's purchasing managers' index showed Sept. 21.

`Stormy' Times

Audi AG, Volkswagen AG's luxury unit in Ingolstadt, Germany, said Sept. 12 that U.S. sales will decline in the fourth quarter partly because of the dollar's weakness.

``We need to batten down the hatches, so to speak,'' Johan de Nysschen, Audi's U.S. chief, said in an interview that day. ``We think it's going to be stormy for a while.''

Paris-based Total SA, Europe's third-largest oil company, calculates that every 10-cent decline in the dollar against the euro shaves 1.1 billion euros from its net operating income.

The European currency has increased 5 percent against the dollar in a little more than a month. At the same time, oil prices have risen to records, pushing up energy bills. A barrel of crude cost $80.72 yesterday, 60 percent more than on Jan. 18.

Companies are also grappling with turmoil in financial markets. Losses on U.S. subprime mortgages have pushed up credit costs and raised concern that the U.S. economy may slip into recession. That prompted the U.S. Federal Reserve to cut its benchmark interest rate by half a point on Sept. 18.

Asian Demand

For now, companies are still benefiting from booming Asian demand. The European Commission said Sept. 11 the global economy may expand faster than previously predicted as growth in economies including China ``more than offsets'' a U.S. slowdown.

Volkswagen, Europe's largest carmaker based in Wolfsburg, Germany, said Sept. 20 sales of its namesake brand will rise to a record this year after gaining 8.3 percent in the first eight months. ThyssenKrupp AG, Germany's largest steelmaker, last month reported a 63 percent gain in third-quarter revenue.

``The euro will show more of an impact on business sentiment next month,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. Now, ``it's a certain burden, but no serious threat'' to German exporters.