German business morale fell for a third straight month in February to reach its lowest level in more than a year, as the outlook among manufacturing firms plunged by the steepest amount in eight years. But as David Pollard reports, state spending on refugees helped support German growth.
It's a divisive issue for ordinary Germans. But a huge influx of refugees is, it seems, good for the economy. State spending on housing, integrating and finding work for them boosted Q4 GDP by 0.2 per cent. Growth as a whole at a steady if unexciting 0.3 per cent. This though, makes grimmer reading. The IFO business climate index at its lowest level in a year. Business expectations falling to 98.8. And for manufacturers, the sharpest drop in that index since just after the collapse of Lehman Brothers in 2008. IFO's Klaus Wohlrabe. (SOUNDBITE) (German) DEPUTY DIRECTOR OF THE IFO CENTRE FOR BUSINESS CYCLE ANALYSIS AND SURVEY, KLAUS WOHLRABE, SAYING: "Consumption continues to be robust but industrial production is in stalemate and will continue to be. We expect a significant downturn. The German economy is currently on a path to we're not quite sure where." Monday's PMI numbers tell a story of a broader euro zone economy slowing - despite more and more price cutting. Inflation trailing the ECB's target rate rate by a huge margin. Big questions, then, over whether governor Mario Draghi's promises of more monetary easing can actually deliver. Rabobank strategist Jane Foley. SOUNDBITE (English) SENIOR FX STRATEGIST, RABOBANK, JANE FOLEY, SAYING: "The ECB will continue to argue that they can continue to make a difference. And again, the relative strength of the euro this year relative to the past couple of years is a difficulty for them. So really what they would need is for the dollar to strengthen, and the dollar is only likely to strengthen when the market has got more confidence in the US economy." The IFO news drove the euro to a three-week low against the dollar - one small positive for the ECB to offset against a mostly negative gloss to this latest round of data.