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Business

German business climate cooling on Greek fears

Business confidence in Germany dropped in June, a leading survey has shown, suggesting worries about the Greek debt crisis are clouding the mood in corporate boardrooms across Europe's largest economy.

The Ifo institute's closely watched business climate index, published on Wednesday, fell to 107.4 points in June from 108.5 points in May - its lowest level since February and the second month in a row that the barometer has fallen.

Ifo president Hans-Werner Sinn said in a statement that the outlook for Europe's largest economy was "overcast."

"The indicator for the current business situation declined following three successive increases. Business expectations deteriorated for the third consecutive month and are now only slightly optimistic," he added.

Ifo calculates its headline index by polling 7,000 companies, asking them to assess the current business environment and the outlook for the next six months.

The sub-index measuring current business fell to 113.1 points, while the outlook sub-index slipped by one whole point to 102.0 points, the institute said.

Greek crisis bites

Analysts had predicted a less significant decline in German business confidence. Carsten Brzeski, economist at ING bank, told the news agency Reuters that the Greek debt crisis and fears of the country exiting the eurozone had "finally reached German businesses."

"However, for the time being, these fears should not yet have a negative impact on the economy," he added.

But Andreas Scheuerle from DEKA bank told the same news agency that once concerns about Greece had vanished the German economy would pick up strong growth in the months ahead.

On Wednesday, the Greek government and its international creditors are making a fresh attempt at overcoming the deadlock in negotiations for a cash-for-reform deal. Greece urgently needs cash to avoid defaulting on a loan repayment to the IMF next week.

The Ifo institute said momentarily the Greek crisis was not yet hitting orders but merely causing uncertainty.

Just last week, the institute revised its expectations for German growth, predicting 1.9 percent for this year. Currently, the country rides high on a tide of private consumption thanks to record-low unemployment.

uhe/br (dpa, Reuters, AFP)

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