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Business

German business confidence slips a fraction

The business climate in Europe's largest economy cooled slightly in May, marking its first downturn in the past six months. Economists, however, expected a more severe dip in confidence amid weaker growth.

The Ifo institute's closely-watched business climate index eased slightly to 108.5 points this month from 108.6 points in April, the German economic think tank said in a statement Friday.

It was the first time since September 2014 that the index has fallen, but Ifo president Hans-Werner Sinn insisted the development was no cause for concern.

"Companies were once again more satisfied with their current business situation, but expressed slightly less optimism about the months ahead," he said in a statement, adding that the German economy "remains on track."

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months. The sub-index measuring current business rose to 114.3 points, the highest level since June 2014, while the outlook sub-index slipped by 0.4 point to 103.0 points.

Economists had predicted a more marked downturn in the barometer. Thomas Gitzel, analyst with Liechtenstein-based VP Bank, told the news agency Reuters that the dip in confidence was due to the "economic gloom prevailing around the globe."

"Against this background, it's even more astonishing that Germany's most important business barometer remains relatively solid," he said.

Growth momentum weakening

The slight drop in German business confidence comes amid an unexpectedly large decrease in German economic output in the first three months of 2015.

The German statistics office, Destatis, on Friday confirmed a previous estimate of first-quarter gross domestic product (GDP) for the country showing an expansion by 0.3 percent in price, calendar and seasonally adjusted terms.

The figure is much lower than German GDP in the preceding three months, which came in at 0.7 percent.

Nevertheless, Destatis also sees the German economy on a "growth path, but with a slightly weaker momentum."

Between January and March, the main driver of economic expansion was domestic demand, the data showed, with both private household spending rising by 0.6 percent and public-sector spending by 0.7 percent.

Investment also increased, particularly in construction, where it rose by 1.7 percent, and equipment, where it grew by 1.5 percent. Exports expanded as well, rising by 0.8 percent.

But since imports rose almost twice as fast at a rate of 1.5 percent, the overall net effect from foreign trade was negative, shaving 0.2 percentage points off growth.

On a 12-month comparison, GDP grew by 1.1 percent in the January-March period compared with the same three months a year earlier.

uhe/cjc (AFP, Reuters, dpa)

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