Germany companies are feeling more pessimistic with business morale there posting its steepest drop since the aftermath of the Lehman Brothers collapse in late 2008.
The Munich-based Ifo think tank’s business climate index, which is based on a monthly survey of some 7,000 firms, fell in August
That raises fresh doubts about the broader European economy as it grapples with a crippling debt crisis.
Ifo economist Klaus Abberger said the slowdown of the US economy and twin debt problems in the US and Europe were the main reasons for the worsening outlook.
“The German economy has been infected,” Abberger said. “I wouldn’t speak of a recession at this moment. The companies still have a cushion of orders. And not every cooling results in a recession, but the recovery is slowing very significantly.”
The German economy has been the region’s strongest since the debt crisis in the euro zone first broke out in Greece at the end of 2009.
But data last week showed gross domestic product (GDP) growth slowed to a meagre 0.1 percent in the second quarter of the year, pushed down by weakening private consumption and declines in the construction sector.
The Ifo index suggests the slowdown could be worse than many economists had thought, removing a key support for the single currency bloc, whose vulnerable peripheral economies are depending on strong demand from their northern partners to help them out of their debt holes.
A weakening economy could make Germans more reluctant to provide cash to help countries like Greece, for whom a second rescue package was agreed by European leaders last month. That deal, which must be approved by national parliaments to go into force, has run into trouble over Finnish demands that Greece put up collateral to offset the loans it receives.