Fall in business morale adds to German recession fears

German business morale fell for a fourth straight month in September and by more than expected, a survey showed on Tuesday, adding to signs that the euro zone's biggest economy may have tipped into recession.

Data earlier this week showed German business activity contracted in September at the sharpest pace in seven months, putting the economy on track to notch a second consecutive quarter of falling output.

The Ifo institute said its business climate index decreased to 85.4 in September from 86.6 in August.

Analysts polled by Reuters had forecast a reading of 86.0.

"The German economy is coming under increasing pressure," said Ifo president Clemens Fuest.

The survey of around 9,000 company managers found most assessed the current situation as having deteriorated.

The current conditions index fell to 84.4 in September from 86.4 in August. Economists polled by Reuters had forecast a reading of 86.0.

'DOWNWARD SPIRAL'

The outlook for the coming months also deteriorated further, with the index falling to 86.3 in September from 86.8 in August.

"The German economy is on the edge of a downward spiral," Ifo economist Klaus Wohlrabe told Reuters.

He said Germany's economy, which contracted by 0.1% in the second quarter, may well shrink further in the third quarter. A recession is normally defined as two consecutive quarters of contraction.

The business climate index declined in all sectors with the exception of construction. In manufacturing, the index fell to its lowest level since June 2020.

"Another day, another downside surprise in the German economic surveys," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

A purchasing managers' survey on Monday showed German business activity contracted more steeply than expected in September as the downturn in manufacturing started to spill over into the broader economy.

The trend in sentiment indicators is pointing downwards again, Commerzbank's chief economist Joerg Kraemer said.

"German gross domestic product is likely to stagnate at best in the second half of the year," Kraemer added.