Euro crisis hits German business morale

German business sentiment fell for a second straight month in June to its lowest level in over two years, in the latest sign Europe's largest economy is beginning to feel the pain from the euro zone debt crisis.

The Munich-based Ifo think tank said on Friday its business climate index, based on a monthly survey of some 7,000 companies, dropped to 105.3 in June from 106.9 in May.

This was the lowest level since March 2010 and slightly worse than expected, with a Reuters poll of 44 economists forecasting the index would fall to 105.9.

"The euro crisis is really hitting home," Klaus Wohlrabe, an Ifo economist, told Reuters. "It's right on the front doorstep."

The Ifo data add to concerns that Germany's economy is losing stamina and may have contracted in the second quarter after it steamed ahead in the first three months of the year, helping the euro zone avoid recession by growing 0.5 percent.

Other recent data have also pointed to a slowdown. Manufacturing activity is at its weakest level in three years, according a purchasing managers' survey published on Thursday.

Imports tumbled at their fastest rate in two years in April, while exports have declined on weakening demand from within the euro zone, where Germany sends roughly 40 percent of its goods sold abroad.

Firms were more optimistic about current business conditions but a sub-index on business expectations fell to 97.3 from a revised 100.8 in May.

The biggest decline in the June Ifo data was in manufacturing, a sector that has driven German growth over the past year.

The figures were released hours before German Chancellor Angela Merkel travels to Rome to meet with her Italian, Spanish and French counterparts to discuss solutions to the euro zone's sovereign debt crisis.

A significant weakening of the German economy, which has so far remained largely immune to the crisis hitting southern economies like Greece, Italy, Spain and Portugal, could encourage Berlin to take bolder steps.

"The German ship is more solid than all other euro zone ships but latest indicators have been good reminders that even the most solid ship can capsize in a rough thunderstorm," said ING's Carsten Brzeski.

"Maybe there is one upside to the latest batch of disappointing data from the euro zone's biggest economy: it shows that a fundamental solution to the euro zone crisis is also in the interest of the German economy."

Last Modified: 2012-06-25 14:57:44
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