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German business morale bounces as 'downturn takes a breather'

German business morale bounces as 'downturn takes a breather'
FILE PHOTO: The skyline with its financial district is photographed early evening in Frankfurt, Germany, October 8, 2018. REUTERS/Kai Pfaffenbach -
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Kai Pfaffenbach(Reuters)
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BERLIN (Reuters) – German business sentiment rose in September as companies took a better view of current conditions but their expectations deteriorated as Europe’s largest economy teeters on the brink of recession, a survey showed on Tuesday.

The Ifo institute said its business climate index rose to 94.6 from 94.3 in August, snapping a run of five consecutive falls. The September reading compared with a consensus forecast for 94.4.

“The downturn is taking a breather,” Ifo President Clemens Fuest said in a statement.

Germany’s export-reliant economy is suffering from slower global growth and business uncertainty caused by U.S. President Donald Trump’s ‘America First’ trade policies and Britain’s planned, but delayed, exit from the European Union.

Ifo economist Klaus Wohlrabe said the German economy is likely to shrink again in the third quarter. That would put it in recession – usually defined as a period of at least two consecutive quarters of contraction – after it shrank by 0.1% in the second quarter.

But Economy Minister Peter Altmaier, speaking immediately after the release of the Ifo data, said Germany was not in a recession even though its growth drivers had deteriorated.

Ifo’s current conditions index rose to 98.5 from 97.4 in August but its expectations index fell to 90.8 from 91.3.

“In manufacturing, the business climate has only one direction: downward,” Fuest said.

Ifo economist Klaus Wohlrabe said the rise in the overall business sentiment index “is not the start of a change of trend, the slowdown is only taking a break”.

On Monday, a purchasing managers’ survey showed that German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum.

Highlighting the weakness in the manufacturing sector, engineering lobby group VDMA also said on Monday production in Germany’s engineering sector will decline by 2% both this year and in 2020. It cited trade conflicts and uncertainties linked to Britain’s planned exit from the European Union.

(Writing by Paul Carrel; Editing by Thomas Seythal and Darren Schuettler)

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