German business confidence deteriorates in July - Ifo

German business confidence deteriorated more than expected in July, to its worst level since April 2013, according to a widely-followed survey released on Friday.

The Ifo business climate index fell to 95.7 from a revised 97.5 in June, missing expectations for a reading of 97.1.

Meanwhile, the current assessment index slipped to 99.4 this month from 101.1 in June, undershooting expectations of 100.4.

The expectations index declined to 99.2 from 94 in June, coming in below expectations for a reading of 94.

The sub-index for the manufacturing sector fell to -4.3 from 1.3, while the gauge for the services sector dropped to 17.7 from 20.3. The index for trade came in at 1.4 versus 7.9 in June and the construction sub-index printed at 23.3 compared to 23.

Ifo President Clemens Fuest said: "Companies were less satisfied with their current business situation and are also looking ahead with increased scepticism. The German economy is navigating troubled waters."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "Let’s be clear, these data are now emitting a serious recession warning for the German economy. We reckon that GDP fell a bit in Q2, and the Ifo now warns that the weakness extended into Q3. That said, this survey has been too pessimistic recently, mainly because it appears to be overly sensitive to the slump in manufacturing and exports, amid still decent growth in domestic demand.

"This is slightly odd to us given that the IFO is supposed to have been revised recently towards a more balanced weight between services and manufacturing."

Capital Economics economist Jack Allen-Reynolds said July’s decline in the Ifo business climate Index is consistent with the message from the PMI that the German economy made a very slow start to Q3.

"We still suspect that the ECB will wait until September before cutting interest rates, but the chance of a cut today has increased," he said.