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German business mood wanes

July 25, 2012

The mood in German businesses has dropped for the third month in a row as companies grow increasingly pessimistic about the eurozone debt crisis. But German consumers appear to ignore the dire signs.

A male businessman's hand giving a "thumbs down" sign
Image: picture-alliance/ dpa

The German Business Climate Index (BCI) dropped to 103.3 points in July, from 105.2 points in the previous month, the Ifo economic institute said Wednesday.

The fall in the institute's closely watched business sentiment barometer was steeper than analysts had expected. They predicted a drop to 104.5 points in a poll made by Dow Jones Newswires.

"The euro crisis is having an increasingly negative impact on the German economy," said Ifo President Hans-Werner Sinn, as he explained the third consecutive monthly drop of the index.

He noted that the business climate in the manufacturing sector deteriorated significantly because German manufacturers were both dissatisfied with their current business situation as well as downbeat about the future.

Ifo's subindex measuring the current business climate fell to 111.6 points in July from 113.9 in June. The subindex, which looks at future prospects, dropped to 95.6 points from 97.2 points. For the whole BCI, 100 points is the long-term average.

Hans-Werner Sinn
Sinn said there was dissatisfaction with the situation at present, and the future outlookImage: AP

Carsten Brzeski, an analyst with ING Bank, told the Reuters news agency that German businesses had finally "arrived in reality."

"The Ifo index figures are a clear warning sign that even the most robust flagship may capsize in the current storm," he said.

Some cheer in retail sector

The German retail sector provided some consolation in the dire business picture, however.

On the back of "robust" private consumption, Ifo growth expert Klaus Wohlrabe said, German retailers assessed both their current business, as well as their six-month outlook "more favorably."

"There are no signs that this is going to change in the second half of 2012," he said, mentioning persistently low unemployment and rising wages as reasons for the development.

In addition, the Ifo expert said that Germany would continue to "stand out" from other eurozone members, as its economy would be growing by at least 0.1 percent in the second and third quarter of this year.

uhe/rc (AFP, Reuters)