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Confidence falls in Germany, France on economic outlook

Primark Opens Store At AlexanderplatzPrimark Opens Store At Alexanderplatz
Down in the mouth: German consumers' mood darkened in August.Photograph by Athanasios Gioumpasis — Getty Images

Sentiment in the Eurozone’s two largest economies took another beating in August, according to two new surveys published Wednesday.

The GfK index of German consumer confidence fell to 8.6 from 8.9 in July, well short of consensus expectations of 9.0, while in France, national statistics office INSEE’s index of business sentiment fell to 96 from 97 a month earlier.

The figures come hot on the heels of a fourth straight monthly drop in German business confidence, and contrast ever more starkly with developments in the U.S., where a strengthening recovery drove consumer confidence to a seven-year high in August.

Germany’s benchmark DAX stock market index fell 0.2% in early trading, while France’s CAC 40 fell 0.1%.

There were hints, however, that the gloom might be overstated. GfK said that the bad news flow from Iraq, Israel (sic) and eastern Ukraine had ground down the “hitherto optimistic” outlook for the economy. Recent data showed the Eurozone’s economy stagnated in the second quarter after a bright start to the year.

But when consumers were asked about their own situations, they replied that they were still upbeat about their own incomes and their propensity to spend–something that will come as a relief to other countries in the Eurozone that are still counting on the German economy to pull them out of recession.

Record-high employment and the absence of any major problems with credit supply have fuelled hopes that the German consumer would come to the rescue of the Eurozone economy for the last two years. But private consumption has only gradually started to pick up, and GfK expects it to rise only 1.5% this year. Germans remain unwilling to take on extra debt despite record-low interest rates. while companies remain leery of investing in new capacity in view of rising geopolitical risks.

In France, meanwhile, INSEE’s survey presented a picture of weakness right across the economy, with domestic and export orders well below long-term averages, and manufacturers taking an exceptionally gloomy view both of their own outlook and the overall economy’s.

The survey, however, predates, the developments of the last 72 hours, in which President Francois Hollande purged his government of left-wing ministers who had been obstructing pro-business reforms announced by Prime Minister Manuel Valls. Valls has now formed a new government with a more solidly centrist agenda.