By TraderVox.com
Tradervox.com (Dublin) – Spain and Italy are experiencing high borrowing cost due to the worsening debt crisis in the euro region and now some signs of slowing German economy are being seen in recent economic data coming from the largest in economy in the region. These worsening conditions have undermined the business confidence in Germany, with the IFO Institute Business Climate Index dropping lower than market expectation in yesterday’s report. The index was at 102.3 against a market expectation f 102.7, dropping from 103.2 recorded in July. This is the fourth month in row the index has recorded a decline.
Worsening conditions in the euro area have resulted to economic growth in Germany slowing from 0.5 percent in the first quarter to 0.3 percent in the second quarter. This has been attributed to the reduced export to the euro region which accounts for about forty percent of Germany’s exports. However, economists are saying that sales to faster growing economies outside Europe and domestic demand have shielded the country from major shocks from the debt crisis. According to Bundesbank, this shield will grow thinner due to the prevailing uncertainty which might cause the economy to weaken. Jens-Oliver Niklasch of Landesbank Baden-Wuerttemberg indicated that the recent data from Germany have not been encouraging and predicted that the construction and export industries will see slowdowns in the future.
Another indication that the debt crisis is affecting Germany’s economy came when Commerzbank AG, the second-largest bank in Germany, announced that its profits are expected to fall significantly during the second half of the year. However, the euro has been supported by European Central Bank’s commitment to protecting it. On August 2, Mario Draghi, the Bank’s President indicated that he would introduce bond purchases program to shield member countries such as Spain and Italy from rising borrowing cost.
Despite these efforts, the recent German Business Confidence data is indicative of the influence the debt crisis has on the largest economy in the euro area.
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