German business sentiment deteriorates more than expected in October

German business confidence deteriorated more than expected in October amid growing global tensions, according to a widely-followed survey released on Thursday.

The Ifo business climate index declined to 102.8 from 103.7 in September, falling short of consensus expectations of 103.2.

Meanwhile, the current assessment index slipped to 105.9 in October from 106.6 last month and the expectations index came in at 99.8 versus 100.9 in September.

The sub-index for manufacturing fell to 19.2 in October from 23.3 the month before, while the index for trade slipped to 10.1 from 11.7 and the construction gauge printed at 32.7 from 31.8 in September.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said this was a big miss but markets were probably expecting a downside surprise following Wednesday's poor PMIs.

Meanwhile, Jessica Hinds, European economist at Capital Economics, said the further fall in the business climate index suggests that while the German economy is still growing at a decent pace, we are unlikely to see a return to the rates of growth seen last year.

"On recent form, the Ifo looks consistent with healthy annual German GDP growth of over 2%. And although both the current conditions and expectations indices fell in October, they remain at fairly high levels.

"The breakdown by sector confirms the message from other surveys and the hard data that the slowdown compared to last year’s strong pace of growth largely reflects developments in the manufacturing sector. This seems to be partly down to new auto emissions standards weighing on output, while firms reported that growing worries about the global economy were taking their toll.

"While the hit to output from the emissions standards should prove temporary, we expect slower global GDP growth and trade tensions to continue to weigh on the manufacturing sector. Reassuringly, the services component of the Ifo only fell slightly in October, contrasting with the sharp fall in the services PMI. This suggests that German domestic spending should hold up well. We see GDP rising by around 1.8% this year and next. But with other eurozone economies experiencing a more marked slowdown, the ECB is likely to stress at its meeting later today that it will proceed cautiously in normalising policy."