German business morale fell in June to its lowest level since December 2005 as firms suffered from the burden of the high oil price, a survey showed today, pointing to a slowdown in Europe's largest economy.
The Ifo economic research institute said its business climate index, based on a monthly survey of around 7,000 firms, fell to 101.3 from 103.5 in May. A Reuters poll of economists last week had pointed to a drop to 102.3.
"The sharp hike in oil prices is evidently becoming an increasing burden on the German economy," Ifo President Hans-Werner Sinn said in a statement.
The euro hit session lows versus the dollar while bunds rose after the decline in German business sentiment as well as news of a contraction in the euro area's services and manufacturing sectors.
A separate Ifo gauge of current conditions fell to 108.3 in June from 110.1 the previous month, the institute said. A reading of 109.0 had been forecast.
The survey's expectations component decreased to 94.7 from 97.2 in May, compared with a consensus forecast of 96.5.
"The figures are relatively disappointing, particularly because the expectations component decreased. We have to count on a weakening of economic conditions in the second half," said Thomas Amend from HSBC Trinkaus.
German companies have coped better than many of their European competitors with the pressures of a strong euro and weaker growth in the United States.
But the benchmark DAX index of leading stocks has fallen about 17 per cent this year, reflecting investor concerns about the outlook, and sharp rises in oil and food prices are unsettling consumers.
The ZEW economic research institute said last week that its gauge of German investor sentiment plunged to its weakest level in 15 years in June, continuing a run of weak data that suggests the German economy is slowing sharply after posting robust growth of 1.5 per cent in the first quarter.