Hopes of a quick recovery in the German economy – the largest in the eurozone, making up nearly one-third of the area’s output – have been dented following the release of the influential Ifo business climate index for June.

The headline west German index assessing the business climate dropped far more sharply than expected last month, hitting a five-year low of 89.5 from May’s 90.8, compared to forecasts of just over 90.

In addition, the business expectations index for western Germany tumbled from May’s 94.9 to 93.6, the lowest since 1993, suggesting that the headline index will deteriorate further before improving.

In eastern Germany, the business climate figure fell from 104.7 to 102.1, while the expectations index sank from 85.3 to 84.1.

The results leave Germany on course for the dubious honour of being the eurozone’s slowest growing economy this year, with no sign of an immediate recovery. They will also increase pressure on the European Central Bank to lower interest rates.

News source: Financial Times