German business confidence falls post-Brexit, says IfoConstruction crane with German flag

Business confidence in Europe’s biggest economy, Germany, has fallen unexpectedly after the UK Brexit vote, according to a closely watched survey.

The Ifo business confidence index, based on about 7,000 company responses, fell to 106.2 points for August from 108.3 in July.

It was the steepest monthly fall in more than four years and took the index to its lowest since December 2014.

Despite the gloom, the euro was up slightly against the pound and dollar.

‘Delayed reaction’

The latest drop follows a much smaller decline in confidence in July immediately after the UK voted to leave the EU.

Economist Carsten Brzeski at ING-DiBa said the ongoing decline “suggests that German businesses have suddenly woken up to Brexit reality”.

“It is not the first time that the Ifo reacts with a delay of one or two months to global events,” he said, adding that at present, the German economy remained in a “virtuous circle”.

Across the sectors it examines, the Ifo found confidence had fallen in all but construction and services.

“The German economy has fallen into a summer slump,” Ifo president Clemens Fuest said.

Other official figures released earlier this month showed the German economy grew 0.4% in the second quarter compared with the previous three-month period.

That was a slower pace than the 0.7% growth in the first quarter, but double what economists had expected.

US criticises EU tax probes ahead of Apple rulingApple logo at store

The US Treasury Department has warned the European Commission about taking action against US companies over tax avoidance allegations.

The commission is investigating tax deals granted to US companies for setting up headquarters in Europe.

Next month the EU is expected to deliver its decision on Apple. The company could be hit with a multi-billion pound bill for unpaid taxes.

The commission said there was “no bias against US companies” in the probes.

In a report published on Wednesday, the US regulator said action by Brussels would make it into a “supra-national tax authority” overriding the tax codes of its member states.

It also said Brussels was using a different set of criteria to judge cases involving US companies, adding that potential penalties were “deeply troubling”.


Apple has been accused of sheltering billions of pounds in profit in the Republic of Ireland tax-free, under a deal it reached with Irish authorities. JP Morgan, an investment banker for Apple, has said the company could face a bill for $19bn (£14.3bn) in a worst-case scenario.

Several companies including Apple, Amazon and Starbucks are under investigation by the European Commission over allegations of tax avoidance.

Last year, the commission ruled that Starbucks and Fiat were given sweetheart tax deals in the Netherlands.

The EU’s executive body said it was investigating whether Apple was given special tax benefits for setting up in Ireland that were not granted to other companies, potentially violating EU state aid rules.

Reconsider actions

Earlier this year the US government publicly challenged the investigation by Brussels, accusing it of targeting US corporations.

Jack LewImage copyrightGETTY IMAGES
Image captionTreasury Department secretary Jack Lew

In its latest move, the Treasury Department asked Brussels to reconsider its actions against several US companies including Apple, Starbucks, and Amazon. It argued penalties for these firms could have broader repercussions for cross-border taxation.

“The investigations have global implications as well for the international tax system and the G20’s agenda to combat [tax avoidance] while improving tax certainty to fuel growth and investment,” Robert Stack, a Treasury Department deputy wrote in a blog on the agency’s website.

He argued that a charge from the European Commission could be considered a foreign tax credit in the US – a classification that could reduce the businesses’ tax bills in the US.

The Treasury Department said it was continuing to “consider potential responses should the commission continue its present course”.

In response the commission said it was trying to ensure EU law was applied equally to all companies operating in Europe.

No selective treatment

Apple has previously said that it had not had “any special tax deal with the Irish government”.

“We have received no selective treatment from Irish officials,” the company has said. “Apple is subject to the same tax laws as scores of other international companies doing business in Ireland.”

The Irish finance ministry has also insisted Apple “did not receive selective treatment and there was no ‘special tax rate deal'”.

“Ireland is confident that there is no state aid rule breach in this case and we will defend all aspects vigorously,” the Department of Finance said two years ago when the European Commission announced its formal investigation.

Tourism ‘will hold up’ after BrexitTourists outside Buckingham Palace watching as guardsmen take part in the Changing of the Guard in central London

Tourism in the UK will “hold up well” in 2016 after the Brexit vote but fewer jobs than expected will be created in the longer term, executives have said.

The World Travel and Tourism Council (WTTC) is predicting growth in the sector of 3.6% in the UK over the year.

This is higher than predicted global growth in the sector of 3.1%.

It said falling domestic spending would be offset by international visitors loosening the purse strings owing to a more favourable exchange rate.


The WTTC said that, despite the initial solidity of the sector in the UK, there would be some added pressures in the next few years owing to the UK’s vote to leave the EU.

It said that the benefit in terms of overseas visitors’ spending from a weaker pound would wear off in 2018 to 2020.

General economic growth in the UK would be weaker and that would affect the industry.

“By 2020, we now expect that the UK travel and tourism sector will support 1.88 million direct jobs, which is approximately 75,000 fewer jobs than forecast in the annual update at the start of the year,” it said in its latest economic update.

Earlier this month, travel researcher ForwardKeys said Brexit had had an “immediate, positive impact” on tourism to the UK. It said flight bookings to the UK jumped since June, driven by the sharp fall in the pound, with 4.3% more flights booked to the UK in the 28 days following the vote than last year.

VW faces production delays amid disputeVW logos

Volkswagen has halted production at several plants in Germany, hitting the output of Golf and Passat models amid a dispute with two external suppliers.

The suppliers, one making seats and the other parts used in gearboxes, have stopped delivering to VW in a contract row.

Car and parts production has already been halted at four plants and will be stopped at two others later this week.

The carmaker said the interruptions in production would affect 27,700 staff.

“Although Braunschweig District Court has issued injunctions obliging the suppliers to resume deliveries, the suppliers have not as yet met their obligations. Volkswagen continues its efforts to reach agreement with the suppliers,” said the company in a statement.

The two suppliers are CarTrim, which makes seats, and ES Automobilguss, which makes cast iron parts used in gearboxes.

They are demanding compensation from VW because they say they their incomes were hit when VW cancelled a contract.

VW says it is continuing its efforts to reach agreement with the suppliers.

Production stoppage

The company said the production stoppage would not affect cars that have already been ordered. Any effect on future production will depend on how long the dispute lasts.

Some production has already been halted at Wolfsburg, which makes Golfs, and at Zwickau where Golfs and Passats are made. Production is due to begin again later this week.

Production has also stopped at Braunschweig, which makes chassis parts and plastic parts, but should start again next Monday.

Later this week, production will cease at Salzgitter, which is involved in engine production, and Kassel where transmission and exhaust system production takes place.

In what the company said was an unrelated issue, production was halted at Emden, which makes Passats, last week and will resume on Wednesday.

In some cases employees have been sent home, in others they are engaged in short-time working on other jobs within the plants.

VW badge on GolfImage copyrightGETTY IMAGES

‘Acute supply risk’

The German Economy Ministry on Monday called on VW and the suppliers end the dispute.

“We assume and also expect the companies to solve the sticking issues as soon as possible,” Economy Ministry spokesman Andreas Audretsch told journalists during a regular news conference.

He added: “It is about thousands of jobs, which could be affected by shorter work hours, and the responsibility to tackle these problems constructively is very high.”

VW in the UK issued a statement in which it said the company was “working intensively on minimising the acute supply risk, the priority being to maintain production in some areas and to ensure that deliveries can be made to customers.

“Volkswagen currently expects to be able to adhere to all confirmed delivery dates,” it added.

Reserve Bank of India: Inflation hawk Urjit Patel to take top jobUrjit Patel attends a news conference in Mumbai, India, 2 February

Urjit Patel has been named as the new governor of the Reserve Bank of India – the country’s central bank.

Mr Patel, currently deputy governor, is a one-time Yale University economist who worked at the International Monetary Fund (IMF) in the early 1990s.

He is known to be very hawkish on inflation, which remains one of the big worries in the Indian economy.

Mr Patel replaces Raghuram Rajan whose term, which was at times controversial, ends on 4 September.

Mr Rajan had been expected to stay for a second term but decided to return to academia.

Inflation hawk: analysis by Simon Atkinson, India Business Editor, Mumbai

A worker pushes a wheelbarrow inside the Reserve Bank of India head office in Mumbai, India, 5 AprilImage copyrightREUTERS

This appointment ends months of speculation over who would get one of India’s highest-profile jobs. Mr Patel represents continuity and a safe pair of hands.

Outgoing governor Raghuram Rajan was one of the world’s most well-known central bankers. The new man has less of a global reputation but enough credentials that international investors – so key to India’s economic growth – are unlikely to be worried.

And the government of Prime Minister Narendra Modi, which has been agonising over this decision for a while, is likely to feel comfortable too. Mr Rajan riled some politicians for weighing into debates seen as being outside the role of a central bank governor – be that tolerance among different religions or the lavish lifestyle of indebted businessmen. Mr Patel will be expected to be lower-key and more conventional.

This is a nation whose food prices can fluctuate widely, often depending on the weather. And for hundreds of millions of Indians being able to afford basic vegetables and pulses is a major concern.

However, in a recent interview with the BBC, Mr Rajan denied having ever been publicly critical of Mr Modi’s government.

Mr Patel takes charge at a time when India has the fastest-growing major economy in the world and its currency, the rupee – which hit record lows in 2013 – is more stable.

And while there have been concerns about inflation rates creeping up as oil prices recover and food costs rise, many expect the central bank to cut interest rates later this year to help stimulate more growth.

Tencent overtakes Alibaba as China’s biggest tech companyMobile phone with apps

Tencent has overtaken its rival Alibaba to become China’s most valuable tech firm after strong results.

The operator of the WeChat messaging app is worth $249bn compared with $246bn for Alibaba.

Tencent shares jumped by over 6% to a record high in Hong Kong after reporting strong quarterly earnings on Wednesday.

The internet giant said profit rose by 47% to 10.9bn yuan ($1.6bn; £1.2bn) in the three months to June.

Revenues surged due to growth in its online gaming business and advertising.

Out of China’s three internet giants, the online gaming and social media company Tencent is now the biggest, but still least known in the West.

Tencent has not attracted the same global attention as its rivals: Alibaba, with charismatic entrepreneur Jack Ma at the helm, and Baidu, the local equivalent of Google.

“Revenues jumped, platforms are booming and it runs the Twitter and Facebook of China,” an IG analyst said. “Investors are hoping that, like Facebook, they can turn active users into revenues.”

UK jobless total falls to 1.64 millionA cyclist passes the entrance to a job centre in east London

Total UK unemployment dropped between April and June in the run-up to the Brexit vote, official figures indicate.

The UK’s jobless total fell by 52,000 to 1.64 million, and the unemployment rate remained at 4.9%, the Office for National Statistics (ONS) said.

The number of people on the claimant count in July, the first month since the UK’s vote to leave the EU, was 763,600, down 8,600 from June.

Wages excluding bonuses rose 2.3% in the three months to June, the ONS said.

Including bonuses, earnings growth was 2.4%.

“The labour market continued on a strong trend in the second quarter of 2016, with a new record employment rate,” said ONS statistician David Freeman.

“However, little of today’s data cover the period since the result of the EU referendum became known, with only claimant count and vacancies going beyond June – to July for the former and to May-July for the latter,” he added.

The jobless total is now at its lowest for eight years, while the unemployment rate is at its lowest since the summer of 2005, according to the ONS figures.

The employment rate reached a record high of 74.5%, with 31.8 million people in work in the three months to June – 172,000 more than the previous quarter.

Brexit ‘labour market toll’

Howard Archer of IHS Global Insight said that the UK economy showed “impressive resilience in the run-up to the EU referendum and the immediate aftermath of the vote to leave”.

However, he warned: “It is premature to draw any firm conclusions from this… It remains likely that softening economic activity and heightened uncertainty will take a toll on the labour market over the coming months.”

Hargreaves Lansdown economist Ben Brettell said that while forward-looking surveys to gauge business confidence had suggested the Brexit vote had delivered a shock, “surveys are driven by sentiment, and can therefore overreact”.

“The dramatic fall in confidence may not ultimately be borne out by activity, and today’s claimant count number is a tentative sign that things might not turn out as bad as many predicted,” he said.

Anna Leach, head of economic analysis and surveys at employers’ organisation the CBI, said that before the Brexit vote, “the UK’s jobs market remained in rude health, though vacancies have continued to tick down since the beginning of the year.”

She said the Bank of England had been right “to act swiftly to shore up confidence and keep money flowing through the economy” by taking steps such as lowering interest rates.

She called on the government to “make ambitious decisions in the Autumn Statement that will secure the UK’s economic future as changes to trade, regulation and access to skills loom on the horizon”.

‘Boost confidence’

Suren Thiru of the British Chambers of Commerce said: “Labour market indicators tend to lag behind the wider economy, so it is likely to be some time before the full post-referendum employment picture emerges.

“However, more needs to be done to boost business confidence, so that firms can continue to grow and recruit.”

Employment minister Damian Hinds described the figures as “record-breaking” and said the UK was “in a position of strength”.

“The job now is to build on this success story so that everybody can benefit from the opportunities that are being created regardless of who they are or where they come from,” he added.

Debbie Abrahams, shadow work and pensions secretary, said the fall in unemployment was “welcome”, but accused the Conservatives of presiding over an economy that was “over-reliant on low paid insecure work”.

“If Theresa May is serious about supporting working people, we need to see serious action on tackling low pay and investing in the high-skilled, high-wage jobs our economy needs,” she said.

The ONS said it was 95% confident that the change in the unemployment total for April-to-June is somewhere between a rise of 25,000 and a fall of 129,000.