German business climate index sees sharp fall on likely Brexit impact

FRANKFURT, Germany - Business sentiment in Germany fell the most in over four years in August, in a signal that Britain’s decision to quit the European Union has started taking a toll on companies and the country's economy.   

Munich-based Ifo economic institute said its business climate index fell unexpectedly to 106.2 in August from 108.3 in July. The data is based on a monthly survey of nearly 7,000 firms from sectors like manufacturing, construction, wholesaling and retailing.

The reading was the lowest since February and the sharpest monthly fall since 2012. 

"Business confidence in Germany has clearly worsened," Ifo head Clemens Fuest said in a statement. "The German economy has fallen into a summer slump," he said, noting all sectors surveyed had reported a drop in the index except construction. 

The latest reading came in as a surprise for many becasue an investor survey by the Mannheim-based ZEW institute earlier this month had shown a recovery.

Ifo's headline figure is derived from separate figures representing companies' feelings on the current business situation, and the outlook for the next six months. The sub-index that measures current business declined to 112.8, two points below the level in July.

Experts, however, are of the opinion that this is a temporary phase, and German economy will remain on the growth path for the rest of this fiscal.

Germany's central bank Bundesbank had predicted GDP growth of 1.7 percent for 2016 and 1.4 percent for 2017 in early June, much before the Brexit referendum.