German Business Sentiment Slips Sharply in September

German business sentiment deteriorated in September as the ifo Business Climate Index fell to 87.7 from 88.9 in August, a sharper monthly drop than expected. Firms expressed less satisfaction with their current business situation, and expectations for the months ahead have turned noticeably more pessimistic. The pullback in outlook means that hopes for an imminent economic recovery have suffered a setback.

In manufacturing, the index declined further. Companies judged their current situation a bit weaker, and expectations became more cautious. New orders fell again, and any earlier signs of recovery among capital goods producers have faded.

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In services, the business climate worsened meaningfully: expectations plunged, dragging the indicator to its lowest level since February, alongside downgraded assessments of the present business situation. Sentiment was especially weak in the transport and logistics sectors. In trade, the overall climate also weakened, driven by gloomier expectations, though assessments of the current situation were somewhat more positive. Retail saw a slight uptick in its indicator, even as wholesale took a hit.

In contrast, construction offered a rare bright spot: the index rebounded after last month’s drop, with companies marginally more satisfied with the present, and prospects for the near term edging brighter