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German business morale drops for third month on euro crisis
July 25, 2012 / 8:30 AM / in 5 years

German business morale drops for third month on euro crisis

BERLIN (Reuters) - German business sentiment dropped in July for the third straight month to the lowest level since March 2010, in a sign that a renewed flare-up of the euro zone sovereign debt crisis is not sparing businesses in Europe's largest economy.

The Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of some 7,000 companies, fell to 103.3 in July from a revised 105.2 in June, its lowest since March 2010.

A Reuters poll of 45 economists had forecast a fall to 104.7 from an originally reported 105.3.

"It looks as if German businesses have finally woken up to reality. Today's Ifo index sends a clear warning that even the most solid ship can capsize in a rough thunderstorm," said ING economist Carsten Brzeski.

Europe's 2-1/2 year old debt crisis had appeared to be easing in the first few months of 2012, but concerns over Spain's ability to escape a full sovereign bailout and Greece missing its reform targets have got the crisis cooking again.

Ifo economist Klaus Wohlrabe told Reuters uncertainty had increased and would grow further in coming months.

He did not see a risk to Germany's AAA-sovereign debt rating but said a cut by Moody's in the outlook for Germany, the Netherlands and Luxembourg to negative from stable was a warning not to overburden Germany, the euro zone's paymaster.

An Ifo sub-index on current business conditions fell to 111.6 from 113.9, while expectations worsened further to 95.6 from 97.2, Ifo said in a statement.

Other recent data suggests the German economy is losing steam and the finance ministry said in its monthly report that growth would probably only reach 0.2 percent in the second and third quarters, after 0.5 percent in the first three months of the year.

Wohlrabe forecast the German economy would grow by 0.1 percent both in the second and third quarters.

For a graphic on Ifo and German growth, click on:

link.reuters.com/bum65s

Reporting by Berlin bureau; Writing by Annika Breidthardt; Editing by Madeline Chambers and Stephen Brown

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