German Business Sentiment Weakens For Fourth Month

(RTTNews) - German business sentiment weakened for the fourth consecutive month to the lowest level in a year in August, as the escalating crisis in Ukraine and the resultant sanctions against Russia pose downside risks to the economic activity.

The Ifo business climate index fell to 106.3 in August, the lowest since July 2013, from 108 a month ago, a monthly survey conducted by the Ifo institute among 7,000 firms showed Monday. The indicator was forecast to drop to 107 in August.

The firms were less satisfied with their current business situation and skeptical about their future course of business as the economy continues to lose steam, the Munich-based institute said.

The current situation index dropped to 111.1 from 112.9 in July. The expected score for August was 112. Similarly, the economic expectations index came in at 101.7 in August, down from 103.4 in July. The index was expected to fall to 102.

Confidence in manufacturing declined to the lowest since July 2013. The current business situation was assessed less favorably for the third consecutive month and the outlook for the coming months deteriorated noticeably.

In wholesaling, confidence hit its weakest point in a year. Wholesalers were significantly less satisfied with their current business situation and the majority of expectations are slightly pessimistic for the first time since July 2013.

In retailing as well, the business climate deteriorated significantly in August. The assessments of the current situation took a clear turn for the worse. Future business developments were again assessed somewhat more skeptically, the Ifo said.

On the other hand, confidence in the construction sector rose slightly in August. The construction companies were slightly more satisfied with their current situation than in July. In addition, they are slightly more optimistic regarding the business outlook.

Business confidence in the service sector dropped to 20.1 from 22.4 in July. Although the assessments of the current situation have improved significantly, the expectations for the next six months have clouded over noticeably.

Low interest rates, low home ownership ratios and high saving ratios have all supported the German real estate markets during the last years, ING Bank NV economist Carsten Brzeski, said.

None of these factors is likely to reverse quickly in the near term, he said. Combined with higher wages, private consumption should remain an important driver of growth in the third quarter and beyond.

Bundesbank last week said sanctions against Russia, and counter actions taken by it, would affect German exports. Crisis in Ukraine as well as conflict in the Middle East weakened Germany's growth prospects so far this year.

Official data earlier this month showed that the largest Eurozone economy contracted 0.2 percent in the second quarter on weaker exports and investment.