Instant View: German business sentiment worsens in October

Reuters

German business sentiment dropped for the sixth successive month in October, in a surprise fall that was bigger than even the lowest forecasts, signaling that the euro zone debt crisis is hitting home in Europe's largest economy.

The Munich-based Ifo think tank said on Wednesday its business climate index, based on a monthly survey of some 7,000 firms, fell to 100.0 in October from 101.4 in September.

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A Reuters poll of 45 economists had forecast a slight rise to 101.5, with figures ranging 100.4 to 102.5.

ECONOMIST COMMENTS

HOLGER SCHMIEDING, BERENBERG BANK:

"Overall it's disappointing and suggests that the German economy will at best stagnate in the final quarter of this year. But there is a small glimmer of hope: The expectations did not fall further. A change of direction always shows up in the expectations first. That gives us hope that it will go up again at the beginning of 2013."

BEN MAY, CAPITAL ECONOMICS

"The unexpected fall in the German Ifo measure of business confidence from 101.4 to 100.0 was driven by a drop in the current conditions component. But while some encouragement may be drawn from the fact that the expectations index was unchanged - it had fallen in each of the five previous months - it still points to annual falls in GDP of around 1 percent, considerably weaker than the second quarter's 1 percent annual gain."

"In all, then, while recent actions by euro-zone policymakers may have calmed the markets, the euro-zone's economic problems remain firmly in place."

CARSTEN BRZESKI, ING

"Today's leading indicators have added clear evidence that recessionary risks in the German economy are increasing."

"The soft landing of the German economy continues. The sharp drop in the current assessment component shows that the good times are, at least for now, over. The industry's safety net has become very fragile. Order books have become significantly thinner over the last months and orders at hand are currently as low as in October 2010. At the same time, companies have increased their inventories. A combination which clearly does not bode well for industrial production in the coming months."

"The sharp drop in the current assessment component is a clear sign that the economy has entered contraction territory. Stabilized expectations, however, give hope that any contraction will not feel like a recession."

(Reporting by Berlin Bureau)