German business sentiment plunged to a 34-month low point in July, a key index showed today, underscoring that high oil prices and a strong euro are throttling Europe's biggest economy.
The monthly business climate index calculated by Munich-based economic research institute Ifo fell to 97.5 points from 101.3 points in June. The last time it was below that level was in September 2005. Analysts had forecast a more modest drop in July to 100.2 points.
The index had already fallen sharply in June, and Ifo president Hans-Werner Sinn said the firms questioned 'are much more dissatisfied with their current business situation and they are clearly more reserved regarding the six-month outlook'.
'These results suggest that the economic upswing is coming to an end,' he added.
Ifo's current situation sub-index dropped to 105.7 points from 108.3 in June, while the expectations indicator fell to 90.0 points from 94.6 points.
Broken down further, the manufacturing business climate index 'has fallen noticeably,' the Ifo statement said.
Germany is the world's leading exporter and the latest findings are bad news because a hoped for pick-up in domestic consumption has failed to materialise owing to high inflation brought on by surging energy and food prices.
In other key sectors covered by the Ifo index - construction, retailing and wholesaling - 'the business climate index is clearly trending downwards,' the statement added.
Ifo surveys roughly 7,000 German companies each month, and its index is considered the most reliable indicator of business sentiment.
