German business sentiment unexpectedly darkens in June, Ifo says

By Miranda Murray

BERLIN (Reuters) - German business morale unexpectedly fell in June amid increasing pessimism about the performance of Europe's largest economy, a survey of around 9,000 managers showed on Monday.

The Ifo institute said its business climate index declined to 88.6 in June from 89.3 in May, compared with a reading of 89.7 forecast by analysts in a Reuters poll.

"The German economy is having difficulty overcoming stagnation," said Ifo president Clemens Fuest.

The expectations index dropped to 89.0 in June from a slightly revised 90.3 the month before. Analysts had expected that index to rise to 91.0.

"This figure is as bad as it looks," said LBBW bank economist Jens-Oliver Niklasch, as expectations are deteriorating again from an already low level - in contrast with the recent trend toward forecast increases.

"It is currently unclear where the hoped-for growth spurt for 2025 will come from," added Niklasch.

LACK OF MOMENTUM?

Ifo slightly raised its 2024 economic forecast to 0.4% last week, predicting that the German economy - the weakest performer among big euro zone countries last year - would begin to recover over the year and reach 1.5% growth in 2025.

"The optimism at the start of the year has given way to realism," said ING analyst Carsten Brzeski, who pointed to the latest purchasing managers' index and Ifo readings as showing that the German economy is still struggling to gain momentum.

The HCOB flash PMI for manufacturing, which accounts for about a fifth of the economy, unexpectedly tumbled further in June, as all indicators suggest demand for industrial goods is failing to get off the ground.

Companies in manufacturing surveyed by Ifo expressed scepticism about the months ahead. They were particularly concerned by the declining order backlog, according to Fuest, though were somewhat more satisfied with current business.

The Ifo index measuring the current business situation stagnated in June, at 88.3, missing analysts' expectations for a slight rise.

(Reporting by Miranda Murray; editing by Thomas Seythal and Mark Heinrich)