German business sentiment posts surprise 6th drop in a row

Reuters

German business sentiment dropped sharply in October to its lowest in more than 2-1/2 years, the sixth consecutive fall dispelling any lingering doubt that Europe's largest economy is now mired in the euro zone debt crisis.

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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The surprise fall to 100.0 was bigger than even the lowest forecast in a survey of 45 economists, which had pointed to a slight rise to 101.5, with figures ranging from 100.4 to 102.5

"The clouds over the German economy are darkening," said Ifo President Hans-Werner Sinn.

The euro hit a one-week low against the dollar and European shares turned negative following Ifo's release.

An index on current conditions fell more than expected to 107.3 from 110.3, while expectations remained flat at 93.2, which was also worse than expected.

Recent data from Europe's largest economy suggests stagnation is on the cards for the rest of the year and has given rise to talk of the risk of recession.

"Today's leading indicators have added clear evidence that recessionary risks in the German economy are increasing," said Carsten Brzeski, economist at ING in Brussels.

A purchasing managers' index, measuring activity in manufacturing and services, showed on Wednesday that Germany's private sector shrank for a sixth month running in October as factory order books thinned.

(Reporting by Berlin Bureau; Writing by Annika Breidthardt; Edited by Stephen Brown)