German business morale falls

German business sentiment fell for the third month in a row in September, dipping to its lowest level since mid-2010, in the latest sign Europe's powerhouse economy is slowing just as the eurozone's debt crisis reaches a critical stage. The Munich-based Ifo economic think tank said on Monday that its closely-watched business climate index, based on a monthly survey of some 7,000 companies, fell to 107.5 in September from 108.7 in August.
It was the lowest level since June 2010, the month after Greece became the first eurozone country to receive a bailout. The data could fuel speculation that the European Central Bank will cut interest rates in October but Governing Council member Yves Mersch said such an idea was "wild".
The headline number was better than the 106.5 forecast in a Reuters poll of 50 economists and the euro rose briefly after the data. But economists said the slightly better-than-expected figure could not mask the fact that Germany's contribution to the broader eurozone economy was slowly eroding. "The risks for the German economy have increased lately and today's drop in the Ifo expectation component is a serious warning," said Carsten Brzeski, economist at ING.
The strength of the German economy has provided a lifeline to peripheral eurozone countries who have been struggling under the weight of their debt burden. But data increasingly point to a weaker outlook, dampened by the twin debt problems in the US and Europe and a slowdown in the US economy. While the Ifo's headline index declined less steeply than in the previous month, the drop still points to a substantial slowdown in the second half of the year, economists said.
Ifo economist Klaus Abberger told Reuters German firms were sceptical about the future and expected no further stimulus from abroad, but he said it was too early to say the economy was headed towards recession. Other data have painted a gloomier picture than Ifo, whose sub-index on expectations dropped to 98.0, the first time it has been below the 100-mark in two years. An index measuring current conditions fell to 116.0 from 118.1.