Plunging confidence

German business confidence fell sharply this month, according to figures released Wednesday by Frankfurt's Ifo Institute for Economic Research.

Ifo's monthly business climate index plunged to 108.7 points from 112.9 points in July, in the biggest drop since the index lost 4.9 points in November 2008. August's results were well below analysts' predictions of 111 points.

The standing was also the index's lowest since it reached 106.5 points in June 2010.

Ifo President Hans-Werner Sinn said German companies had "scaled back their expectations of business developments in the coming half year."

"The current business situation, however, continues to be assessed overall as good, although the situation appraisals in recent months were significantly more favorable," Sinn added.

"Recent financial market turmoil and the never-ending eurozone sovereign debt crisis have befogged the outlook for the German economy," said Carsten Brzeski, senior economist at ING Group.

'Remarkably bad'

Gerd Hassel of Frankfurt's BHF Bank called the results "remarkably bad," adding: "We expect weak growth as the year goes on."

Hassel added he was not expecting a recession for Germany but that the chances of a "technical recession" for the eurozone were "50-50."

Jörg Lüschow of Düsseldorf's WestLB Bank agreed with Hassel's assessment. "The Ifo data are more an alarm signal for 2012," he said, adding, "To some extent it's a normalization [process] after a phase of unusually strong growth."

Ifo's survey of some 7,000 companies showed dips in all three of its categories: manufacturing, retailing and construction.

Author: David Levitz (AFP, Reuters)

Editor: Martin Kuebler