German business morale slips

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German business morale slips

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There have been more signs that Germany’s economic recovery could be running out of steam.

German business sentiment fell to a nine-month low in July. The latest survey of 7,000 companies by the Ifo think tank showed bosses to be much more pessimistic.

At the same time the euro zone’s manufacturing Purchasing Managers’ Index showed growth in the sector came to a standstill this month, while the equivalent services index sank.

Germany has been the star performer in the industrialised world since the end of the financial crisis, and economists were split on whether this survey points to a sharp slowdown or just a moderate easing from unsustainably strong growth in the first part of 2011.

Ifo economist Klaus Abberger was relatively upbeat, saying that Germany’s economy was set for a soft landing. The euro zone crisis had relatively little impact on Germany to date, although export expectations were down sharply, he added.

Other economists were concerned that Friday’s Ifo data could indicate a sharper slowdown. The expectations component of the data was down, and construction was the only sector to report an improvement in business conditions.

“We suspect that July’s fall is the start of a sharp downward trend,” said Jennifer McKeown of Capital Economics. “The strong euro was taking a toll on exporters. And with German taxpayers becoming ensnared in the euro zone peripheral debt crisis, it seems unlikely that consumers will be prepared to pick up the slack.”

Combined with recession in the periphery of the euro zone, Germany’s weakening growth meant the bloc as a whole would barely expand next year, McKeown added.