WRAPUP 1-German recovery skids on euro zone debt slick

* Ifo business sentiment reading unexpectedly falls in May

* GDP data shows recovery sluggish in Q1

* PMI shows private sector growth slows in May

By Paul Carrel

BERLIN, May 21 (BestGrowthStock) – German business sentiment dipped
in May and private sector growth slowed as the euro zone debt
crisis darkened the outlook for Europe’s largest economy.

Fears that markets within the euro zone might collapse or
that the zone might even break up have brought a huge dose of
uncertainty into the prospects for business. But by exacerbating
a sharp fall in the euro, they are also boosting German exports’
competitiveness outside the single currency zone.

“We are seeing a tug of war between two factors,” said
UniCredit economist Andreas Rees.

“On the one hand you have a weaker euro and strong growth in
Asia, which is positive. On the other hand, companies are facing
a huge amount of uncertainty due to the debt crisis.”

The Munich-based Ifo think tank said on Friday its business
climate index, based on a monthly survey of some 7,000 firms,
slipped to 101.5 from 101.6 in April, bucking expectations for a
rise to 102.0 (ECONDE: ). The fall was the first since February.

Separate data showed the economy grew at a sluggish pace in
the first three months of this year and, while economists expect
a pick-up in the second quarter, they are concerned the euro
zone crisis may weigh on the recovery later this year.

A purchasing managers’ index (PMI) heightened the concerns,
showing Germany’s private sector expansion slowed in May as the
crisis and a peak in inventory rebuilding put a brake on output
and order book growth. [ID:nSLAKGE644]

“We expect growth of at least 1 percent for the current
quarter,” said BHF Bank economist Uwe Angenendt. “But it remains
to be seen whether growth will remain solid despite the debt
crisis.”

Chancellor Angela Merkel rocked markets on Wednesday by
saying “the euro is in danger”, and a move by Germany this week
to ban some speculative trading activities has also fed market
concerns about the future of the single European currency zone.

A stampede out of the euro due to worries about the broad
economic impact of the debt crisis drove it to a four-year low
against the dollar this week — representing a fall of around 13
percent since the start of the year.

EXPECTATIONS SLIP

An Ifo index on current German business conditions edged up
to 99.4 from 99.3 in April, but an expectations index fell to
103.7 from 104.0 last month. [ID:nBAE003785]

The engineering group Siemens (SIEGn.DE: ) said the stronger
dollar was good for it, and Airbus parent EADS (EAD.PA: ) has also
forecast a long-term benefit from the battering the euro has
taken. [ID:nLDE64D04J] [ID:nFAB015639]

Germany exited its deepest post-war recession in the second
quarter of last year but the recovery slowed in the winter when
severe weather disrupted business activity.

Gross domestic product (GDP) grew 0.2 percent in the first
quarter of this year, the Federal Statistics Office confirmed on
Friday, expanding for the fourth consecutive quarter.

The economy was saved from a lapse back into contraction in
the January-March period by inventory building, which helped
outweigh shrinking private consumption and construction.

Net trade subtracted 1.1 percentage points from GDP as a 6.1
percent surge in imports outweighed a 2.6 percent export rise.

Recent economic indicators have beaten forecasts and pointed
to a renewed pick-up. Industrial output and orders surged in
March, while exports rose at their fastest rate in nearly 18
years, surpassing even the most optimistic predictions.

“The latest industry data suggest we will see strong growth
in the spring,” said Alexander Koch, another UniCredit
economist. “Positive news also comes from the strong rise in
imports: Many of these feed into production and exports.”

However, the weaker PMI reading raised concerns about the
economic outlook beyond the second quarter.

A flash estimate of the Markit composite PMI index, which
surveys the service and manufacturing sectors, fell to 55.5 from
59.3 in April, but remained above the key 50 mark separating
contraction from expansion.

“It is quite worrying — this is the first time we have seen
the debt crisis have an impact on economic growth,” said Chris
Williamson, chief economist at the data compiler.

“Headlines about the collapse of the euro are definitely
causing some uncertainty among consumers… what is good is that
it is not yet affecting global trade.”

Stock Research Tools

(Additional reporting by Sarah Marsh; Editing by Kevin Liffey)

WRAPUP 1-German recovery skids on euro zone debt slick