-Hans-Werner Sinn, Ifo president
Business morale in Europe's powerhouse declined more than expected in June, dropping to the lowest level this year, on concerns among German companies that geopolitical tensions in Ukraine and Iraq would adversely affect their business. The Munich-based Ifo institute's business climate gauge fell to 109.7 down from unrevised 110.4 in the previous month, marking the second straight monthly decline. The data followed a gauge of German manufacturing and services activity published on Monday, which also showed slower than projected growth in the corresponding sectors. While German central bank has said the nation's economic outlook remains positive, predicting that Germany's economy grew slightly in Q2 and that the pace will accelerate again in the second half of the year, the European Central Bank is relying on unprecedented stimulus to boost growth and inflation in the Euro bloc.
German companies have been concerned since early this year about geopolitical instability in Ukraine, worrying that tougher sanctions could impact their business. More than 6,000 German companies operate in Russia, and it is expected that an escalation in tensions over Ukraine might result in enormous losses for companies. Meanwhile, Iraq's fight against a Sunni insurgency has driven oil prices up amid concerns of potential supply disruptions.
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