German business confidence has fallen to its lowest point since August 2012, according to the latest IFO Business Climate Index.
The October survey showed confidence slipping to 103.2 this month, missing analyst forecasts for 104.3 and below the 104.7 figure in September.
The decline will compound fears over the health of Europe’s largest economy after German government cut the country’s economic growth forecast to 1.2% from 1.8% and 2015 forecast to 1.3% from 2% earlier this month. German industry is already showing signs of weakness after seeing a 4% drop in production between July and August.
The concern is that weakening sentiment is a sign of further weakness to come for Europe’s powerhouse economy, which could add to pressure on policymakers with the eurozone already battling the threat of deflation.
As a note from Pantheon Macro suggests:
The headline German business confidence index continues to point to subdued growth ahead for the industrial sector in the euro area’s largest economy, with the decline in both the headline and expectations reinforcing the downtrend that began in April … The overall message from the IFO survey is one of weak growth ahead, and elevated downside risks for growth in the fourth quarter.
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