Business sentiment in Germany, Europe's largest economy, unexpectedly worsened in August as pessimism about the current situation outweighed a brighter outlook for the coming six months, a survey showed yesterday.
The deterioration comes less than a month before a snap general election which opinion polls suggest Social Democrat (SPD) chancellor Gerhard Schröder will lose to the opposition conservatives (CDU/CSU) led by Angela Merkel.
The Ifo economic research institute's closely-watched business climate index, a key gauge of Europe's economic health based on a monthly survey of around 7,000 German firms, fell to 94.6 from 95.0 in July, Munich-based Ifo said.
It was the first decline since May and came in below the mid-range economists' forecast for a rise to 95.2. Forecasts ranged between 93.6 and 96.6.
The euro briefly dipped from one-week highs against the dollar and the yen following the Ifo data, while the September Bund future rose to a seven-week high.
Analysts said that although companies were more optimistic about the second half of the year, and that growth would likely accelerate in the third quarter after stagnating in April-June, it was unclear if Germany was heading for a sustained pickup.
But Ifo president Hans-Werner Sinn said that despite the "downward correction" in August, the index was still higher than in March to June.
Mr Sinn noted that companies' expectations for the next six months had improved for a third straight month.
"On the whole, the latest survey results do not rule out a moderate improvement in the coming months," Mr Sinn said.
Ifo's measure of current business conditions dropped to 93.8 from 94.9, but a gauge of expectations for the next six months rose to 95.4 from an upwardly revised 95.1.
