FRANKFURT, (Internet): Germany faces the prospect of a full-blown recession after key surveys Tuesday showed business and consumer confidence falling away in Europe's economic powerhouse.
The economy contracted 0.5 per cent in the three months to June and economists, in light of the latest poor data, now question whether it could tip into recession, defined as two straight quarters of falling output.
A monthly business climate index calculated by the economic research institute Ifo fell from 97.5 points in July to 94.8 points this month, its lowest level since August 2005.
Household confidence as measured by the GfK institute meanwhile fell to a five-year low, owing to "subdued economic prospects and the expectation of additional price hikes."
The drop in Ifo's business climate survey was the third in a row and came after the country suffered its first quarterly decrease in economic activity in four years.
A sub-index that measures expectations for the coming six months dropped from 89.9 to 87.0 points, a level not seen since a German recession in 1993.
Business leaders were increasingly pessimistic in the manufacturing, business and service sectors, Ifo found.
In manufacturing, survey participants forecast weaker support from crucial exports and said they would observe more caution in hiring.
Germany has benefitted from falling unemployment but the trend has begun to slow and could put additional pressure on consumer confidence.
"The latest data from Germany have brought further evidence that the economy has taken a turn for the worse," said economist Jennifer McKeown at Capital Economics.
She called the decline in the Ifo index "a worrying sign that the economy is slowing fast."
The only bright spot in Ifo's data was in wholesale, where the current situation was seen "as slightly positive and the outlook is assessed less critically."
