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September 25, 2017

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Ukraine,Iraq weigh on German business confidence:Ifo

FRANKFURT--Concern about the economic impact of the crises in Ukraine and Iraq pushed business confidence in Germany to a six-month low in June, data showed on Tuesday.

The Ifo economic institute's closely watched business climate index fell to 109.7 points in June — its lowest level since December 2013 — from 110.4 points in May.

That is a slightly steeper fall than expected: analysts had been penciling in only a fractional dip to 110.2 points.

"Assessments of the current business situation remained good, but companies were less optimistic about future business developments. The German economy fears the potential impact of the crises in the Ukraine and Iraq," explained Ifo chief Hans-Werner Sinn.

Ifo calculates its headline index on the basis of companies' assessments of current business and the outlook for the next six months.

The sub-index measuring current business was unchanged at 114.8 points.

At the same time, the outlook sub-index fell to 104.8 points, its lowest level since October 2013.

Analysts were disappointed by the renewed drop in the index.

The reading "adds to signs that the recovery in the eurozone's largest economy might already be nearing a peak," said Capital Economics economist Jennifer McKeown.

"The fall is the third in four months, leaving the index at a six-month low and mirroring recent declines in the ZEW investor survey and in the German PMI," the expert said.

Nevertheless, "the recovery looks set to continue at a reasonable pace for now. But these early signs of a slowdown are a disappointing indication that the eurozone's main engine is sputtering," McKeown said.

ING DiBa economist Carsten Brzeski felt that "there is clearly no reason to panic."

The German economy is currently sending mixed signals, he said.

"On the positive side, the strong fundamentals with record high employment, low unemployment rates and extremely favorable financing conditions should ensure continued solid growth in the months ahead," Brzeski said.

However, despite the strong fundamentals, "there are currently also some negative factors weighing on German growth prospects," the analyst continued, pointing to disappointing industrial output data.

Nevertheless, any slowdown in growth in the second quarter, "will rather be of a technical than of a fundamental nature," Brzeski continued.

"Looking beyond short-term fluctuations, the bright prospects for domestic demand should offset any possible headwinds for exports from the far East and the nearby West," he concluded.

Berenberg Bank economist Holger Schmieding similarly believed that "despite the setback, the Ifo index is still in line with solid growth, even if "the acceleration phase of the German upswing is clearly over."

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