Business confidence in France and Germany fell in April as commodity prices continued to rocket, according to a survey from the Munich-based Ifo Institute. The institute’s business climate index, based on a poll of 7,000 executives, slumped to 102.4, down from 104.8 the previous month. The survey follows a European Union report indicating that inflation jumped to a 16-year high of 3.5% in March. Bloomberg:
“Everything is worrying for executives: raw material prices climbing almost uncontrollably, the euro’s rise, the global slowdown that’s shaping up,” said Bruno Cavalier, an economist with Oddo & Cie. in Paris. “There’s every reason for growth to deteriorate.”
The euro-region economy will expand just 1.4 per cent this year after 2.6 per cent growth last year, the Washington-based IMF said April 9. That would be the slowest expansion since 2003. The euro fell a cent against the dollar after the Ifo release and traded at $1.5745 at 11:48 a.m. in Frankfurt. Economists had predicted a smaller decline in the Ifo index to 104.3, while the gauge of French optimism was expected to hold at 108.
With fundamentals beginning to weaken, the pressure will be on for ECB head Jean-Claude Trichet. Like his American counterpart, Trichet is faced with a catch-22. If he lowers rates to bolster spending, he risks accelerating inflation and destroying the euro. If he hangs tough, growth will slow and the Euro will continue to appreciate, punishing exporters.
Unlike Bernanke however, Trichet has the joy of dealing with the internal politics of more than 15 sovereign nations, all of which are growing at different rates, have different trade balances, different budget deficits, and different agendas.
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