German economy to show bruises from euro crisis

BERLIN Fri May 18, 2012 11:58am EDT

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BERLIN (Reuters) - German business confidence and output faltered in May, surveys are expected to show, on fears that legislative gridlock in Greece could lead to a damaging euro zone exit, although consumer mood should hold steady to provide vital support.

Growth in Germany helped the euro zone as a whole avoid a recession, but with demand from exports markets further afield also seen slowing, Europe's largest economy may also start to show signs of strain.

The Ifo business climate index, an influential barometer of economic health in Germany, is seen slipping to 109.4 points in May from 109.9 in April, according to the consensus forecast in a poll of 41 analysts, ending a run of six consecutive gains. Forecasts ranged from 108.8-110.2 points.

The manufacturing Purchasing Managers Index (PMI) for May, a gauge of factory sector activity, is seen at 47.0, pointing to further contraction in the sector albeit at a slower pace than April, when the survey fell at its fastest pace in nearly three years.

"The (Ifo) survey has been particularly optimistic lately and rose to a level consistent with annual GDP growth of 2 percent or more in April. But the index rose by a marginal 0.1 points in both March and April, suggesting that sentiment might have reached a turning point," wrote Jennifer McKeown at Capital Economics.

"With the situation in Greece edging close to crisis point and demand from outside the euro-zone slowing, we expect the Ifo measures of current activity and expectations to have fallen this month... a decline this month may well be a sign of things to come," she added.

The services sector is seen expanding a little, but at a slower pace than in April.

The GfK survey of consumer confidence data due on Friday is expected to remain stable at 5.6 points, lending some reassurance that hopes of higher wages are fuelling spending and big-ticket purchases.

EXPORT PROP

Detailed gross domestic product data for the first quarter are also due next Thursday - likely to confirm Germany's heavy dependence on its export markets, which are looking increasingly fragile.

This week the statistics office issued flash figures showing the Germany economy grew a surprisingly strong 0.5 percent on the quarter and 1.7 percent on the year on robust exports to non-European countries. But analysts warned of a weak second quarter ahead.

"The pick-up in Germany was mainly due to the external sector, implying that the needed rebalancing of its economy is not yet taking place," said McKeown.

(Reporting by Alexandra Hudson; Editing by Toby Chopra)

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