German Business Confidence Probably Fell to Lowest in a Year

Sept. 25 (Bloomberg) -- German business confidence probably fell to a 12-month low in September after the euro's advance dimmed the outlook for growth in Europe's largest economy, a survey of economists shows.

The Ifo research institute's sentiment index dropped to 105 from 105.8 in August, according to the median of 38 forecasts in a Bloomberg News survey. The institute will release the report, based on responses from 7,000 executives, at 10 a.m. in Munich today.

The euro's ascent to yesterday's record $1.4130 threatens to curb exports after the U.S. housing slump roiled financial markets and pushed up the cost of credit. The IW economic institute in Cologne yesterday cut its forecast for German economic growth next year to 1.9 percent from 2.2 percent, citing the euro's strength and market turbulence.

``Companies face three problems at the moment,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``The economy is losing momentum, the financial market crisis is rocking the boat, but the third problem might be the biggest: the euro has appreciated to a level that's getting painful for companies.''

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 against the euro. 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.

Euro Record

The European currency has increased 5 percent 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.

IW predicted German growth will slow to 2.5 percent this year from 2.9 percent in 2006. 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.

Losses on U.S. subprime mortgages have pushed up credit costs and raised concern that the U.S. economy may slip into recession, prompting the U.S. Federal Reserve to cut its benchmark interest rate by half a point on Sept. 18.

German investor confidence fell to a nine-month low this month. 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.

The European Central Bank on Sept. 6 shelved a planned interest-rate increase, leaving its benchmark rate at 4 percent as its assesses the impact of market turmoil on the euro-region economy. The ECB's 19-member rate-setting governing council is scheduled to hold its next rate meeting on Oct. 4 in Vienna.