German business morale weakens as Greek crisis bites

German business morale weakened for a second straight month, suggesting concerns about the Greek debt crisis are hitting the mood in corporate boardrooms across Europe’s largest economy.

Ifo’s business climate index, based on a monthly survey of some 7,000 firms, dropped to 107.4 in June from 108.5 in May. That was its weakest reading since February and was below the Reuters consensus forecast for a reading of 108.1.

"The number one topic in Germany has finally reached German businesses: the Greek crisis and fears of a Grexit," said Carsten Brzeski, economist at ING.

“However, for the time being, these fears should not (yet) have a negative impact on the economy,” he added.

Athens urgently needs cash to avoid defaulting on a loan repayment to the IMF next week. Fears about the risk of a default have prompted savers to withdraw billions from Greek banks, forcing the European Central Bank to increase emergency liquidity assistance to keep them afloat.

While German economic growth slowed to 0.3 per cent in the first quarter, many economists expect it to grow faster in the April-June period quarter given that the latest data has shown orders, output, exports and retail sales all rising.

Earlier this week the finance ministry said the German economy had a good start to the second quarter and indicators pointed to the upturn continuing. The Ifo survey showed companies felt more downbeat about their current situation than in May and were also more pessimistic about their outlook for the next six months.

Reuters