Euro crisis weighs on German business morale

Wed Jul 25, 2012 7:28am EDT
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By Annika Breidthardt

BERLIN (Reuters) - German business sentiment dropped in July to its lowest level in more than two years, adding to signs that Europe's largest economy is losing momentum along with its immunity to fallout from the region's deepening debt crisis.

The Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of some 7,000 companies, fell for the third month running to 103.3, its lowest since March 2010, when the economy was recovering from financial crisis.

A Reuters poll of 45 economists had forecast a fall to 104.7 from a marginally downwards revised 105.2 in June.

"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, which appeared to be easing early in 2012, has flared again on concerns Spain may succumb to a full sovereign bailout and Greece be forced to exit the single currency zone.

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

He saw no risk to Germany's AAA sovereign debt rating but said Monday's move by credit agency Moody's to cut its outlook to negative was a warning to the region not to overburden the euro zone's paymaster with financial demands.

"Germany's strength is not unlimited," Wohlrabe told Reuters in an interview.   Continued...

A demonstrator sits in the euro sculpture as the waits for police to clear the camp of occupy protestors in front of the European Central Bank (ECB) in Frankfurt, May 16, 2012. REUTERS/Kai Pfaffenbach