German business morale sours in August as Ukraine crisis weighs

Mon Aug 25, 2014 5:49am EDT
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By Michelle Martin

BERLIN (Reuters) - German business sentiment dropped for a fourth straight month in August as concerns about the Ukraine crisis and the impact of sanctions against Russia sweep through corporate boardrooms in Europe's largest economy.

The Munich-based Ifo think tank's business climate index, based on a monthly survey of some 7,000 companies, fell to 106.3 from 108, undershooting the Reuters consensus forecast of 107. ECONDE

That was its lowest level since last July and marked the longest period of successive monthly declines in the index since the height of the euro zone crisis in 2012.

The reading raised doubts about the strength of the economy after a surprise second-quarter contraction, sending the euro to a day's low against the dollar and pushing German Bund futures up to a day's high.

"The crisis in Ukraine, but also the disappointing recovery in the euro zone, are weighing on confidence and thus investment," Berenberg Bank senior economist Christian Schulz said.

"German growth could still recover quickly if the tensions in eastern Ukraine were to subside. But that remains a distant prospect, suggesting that economic weakness will persist," he said.

German gross domestic product (GDP) shrank by 0.2 percent between April and June and the finance ministry has partly blamed this on the Ukraine crisis and sanctions against Russia. Growth in the euro zone ground to a halt in the same period.

Ifo economist Klaus Wohlrabe said Ifo expected growth to be "close to zero" in the third quarter, many economists having forecast that Germany would regain momentum in that period.   Continued...

People walk through the Galerie Luise shopping mall in downtown Hanover June 19, 2012.     REUTERS/Fabian Bimmer