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Business confidence in two biggest economies in Europe stumbled

Staff Writer |
The Ifo Business Climate Index, which is a highly-regarded early indicator of economic developments in Germany published on a monthly basis, fell from 108.3 points in July to 106.2 points in August.

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Business confidence in Germany has clearly worsened, said Clemens Fuest, president of the Ifo Institute.

"Both the current business situation, and the expectations for the next six months, were assessed more poorly by the companies than in the previous month. The German economy has fallen into a summer slump," Fuest said in a statement.

"The IFO survey in Germany was a nasty downside surprise for markets," Claus Vistesen, chief eurozone economist of Pantheon Macroeconomics said, noting that the business climate index was well below the consensus forecast of a modest rise.

In addition, the expectations index slid to 100.1 in Germany, from a revised 102.1 in July.

"We start to worry when this gauge flirts with a dip below 100; it has historically been a reliable indicator of a business cycle downturn in Germany," Vistesen said.

According to surveys, retail confidence in Germany slipped to a 32-month low, and growth in consumer goods spending was slowing.

However, the surveys noted that sentiment in the construction industry was stable in August, the economist estimated the capital expenditure (capex) in the building sector, which is almost 50 percent of total investment, will support German capital formation in the following quarter.

French business sentiment also stumbled in August. The headline manufacturing confidence index fell to 101 in August, from 103 in July, and the overall business confidence gauge fell marginally to 101 from 102 last month, according to the monthly business survey by the National Institute of Statistics and Economic Studies (INSEE).

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