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Ifo: German business sentiment improves, but manufacturing downturn deepens

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Ifo: German business sentiment improves, but manufacturing downturn deepens

German business sentiment improved in September from August amid better assessment of the current situation, though the outlook for the coming months deteriorated further, according to a survey by the ifo Institute.

The seasonally adjusted ifo Business Climate Index rose to 94.6 in September from 94.3 in the previous month. The consensus estimate of economists polled by Econoday was for a reading of 94.5.

The current business situation index rose to 98.5 in September from 97.4 in August, while the expectations index declined for the sixth consecutive month, to 90.8 from 91.3.

"In manufacturing, the business climate has only one direction: downward," said Clemens Fuest, president of the ifo Institute. The corresponding indicator dropped to negative 6.4 in September from negative 6.0 in the previous month. "The current demand development and production plans offer no promise of improvement in the coming months," Fuest added.

Separate data showed that the German manufacturing sector activity declined at its sharpest pace since the financial crisis in mid-2009.

The business climate indicator for the service sector improved to 16.6 in September from 13.0 in the prior month, while that for the trade sector worsened to negative 3.7 from negative 2.4 in August.

Carsten Brzeski, chief economist at ING Germany, said the data set offers a breather but the German economy continues to face the risk of a recession. "While a 'light' technical recession is not the end of the world for an economy which has been growing for more than 10 years and has an unemployment rate at all-time lows, it is the lack of any signals of an imminent rebound which is more concerning," Brzeski wrote.

Weak business investment in Germany remains a key concern as it prevented an estimated 4.2% from the country's potential GDP in 2018, according to a recent report from S&P Global Ratings. The ongoing global economic slowdown may hold the country back for a long time.