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 The Munich-based Ifo think tank's business climate index, based on a
monthly survey of some 7,000 firms, fell to 104.7 from 106.3. The
Reuters consensus forecast had been for a milder decrease to 105.7.
"The German economy is no longer running smoothly," Ifo said. The
survey showed sentiment worsening across all sectors of the economy.
The German economy steamed ahead at the start of the year thanks to
an unusually mild winter that boosted construction activity. But it
contracted by 0.2 percent in the second quarter, leading some to
warn of the risk of recession.
The crisis in Ukraine and a faltering European economic recovery are
seen as the main factors behind the weakness.
Ifo economist Klaus Wohlrabe told Reuters after the release of the
index that he now expects zero growth in Germany in the third
quarter. For the full year, he said gross domestic product (GDP) was
likely to expand by around 1.5 percent.
SOFT SPELL OR NEAR STAGNATION?
"The euro zone's biggest economy has reached a dangerous stage
between soft spell and longer-lasting almost-stagnation," said
Carsten Brzeski, chief economist at ING.
While hard data has suggested the economy remains robust, sentiment
indicators have been more gloomy for a while.
Earlier this week, the German Bundesbank predicted a positive end to
the year despite the recent slowdown. The government is forecasting
growth of 1.8 percent this year, although Berlin has hinted it may
just miss that forecast.
Some observers, including industry lobby BDI and the Paris-based
Organisation for Economic Cooperation and Development (OECD) have
cut their forecasts for the year following the weak second quarter.
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BDI has cut its forecast to 1.5 percent growth from 2.0 percent,
saying that crises in Ukraine, Iraq and the Middle East as well as
some government policies were creating uncertainty for companies.
Wohlrabe, too, said the Ukraine crisis and a flagging European
economy, were causing uncertainty for German companies.
Germany has extensive business ties with Russia, with more than
6,000 German firms active there. About 10 percent of German
exporters send goods to Russia and some of those are concerned that
the standoff between Moscow and the West over Ukraine will hurt
their business.
German consumer goods group Henkel has forecast a tough six months
ahead not least due to political turmoil in Russia, its
fourth-largest market.
And earlier this month, Opel, the European arm of General Motors,
said it would cut production and shedding around 500 jobs in Russia
amid a plunge in local demand.
(Reporting by Berlin Newsroom; Editing by Noah Barkin)
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