German business morale unexpectedly fell in July amid increasing pessimism about the performance of Europe's largest economy, a survey of around 9,000 managers showed on Thursday.
The Ifo institute said its business climate index sank to 87.0 in July from 88.6 in June, compared with a reading of 88.9 forecast by analysts in a Reuters poll.
"The German economy is stuck in the crisis," said Ifo president Clemens Fuest.
This is the third consecutive decline in Germany's most prominent leading indicator.
"While one is none, three is clearly a trend," ING's global head of macro Carsten Brzeski said. "The German economy is back as the eurozone's growth problem child."
*** A weaker global economic outlook, policy uncertainty in both France and Germany as well as the potential implications of the US presidential elections for Europe seem to be weighing on business sentiment, Brzeski said.
The companies were less satisfied with the current business situation. The current conditions index fell to 87.1 from 88.3 in the previous month. Analyst polled by Reuters expected the index to rise to 88.5.
This goes in line with the HCOB German flash composite Purchasing Managers' Index, which showed on Wednesday that German business activity contracted unexpectedly in July following three months of expansion.
"The large fall in the Ifo index adds to the impression that the rebound in Germany's economy earlier in the year has already run out of steam," said Andrew Kenningham, chief Europe economist at Capital Economics.
Germany was the worst performing major economy last year, with gross domestic product contracting by 0.3%. It skirted a recession at the start of the year but growth has been slower than expected.
"We suspect that GDP growth will be very weak, at best, in the second half of the year," Kenningham said.
Scepticism has also increased noticeably with regard to the coming months. The expectations index dropped to 86.9 in July from 88.8 in June. Analysts had expected that index at 89.0.
"The malaise is affecting almost all sectors," Ifo's head of survey Klaus Wohlrabe told Reuters, adding that the main problem is a severe lack of demand. In industry, 40% of the companies complained about the lack of orders.
"There is no indication of when a turnaround to positive momentum might occur," Wohlrabe said.
