Morale among German businesses dropped yet again in April, data showed Tuesday, with economists asking whether the euro zone's largest economy is slowing down without anyone noticing.
Germany's Ifo business climate index — a key chart of morale among German businesses — fell to 102.1 points in April from 103.3 points in March, marking the fifth consecutive month of declines.
Economists said the results pointed to a mixed picture for the German economy, a key pillar of the euro zone's economic health.
"Today's disappointing reading will feed the discussion on whether Germany and the entire euro zone is currently only in a soft patch or actually at the start of an unexpected downswing," Carsten Brzeski, chief economist of Germany and Austria at ING, said in a note Tuesday.
Joerg Kraemer, chief economist at Commerzbank, said that the survey pointed to a slowdown in growth momentum while Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, said the results, in two words, were "nicht gut" (not good).
The Ifo index surveys 9,000 German businesses on their assessment of the current business climate, situation and their expectations for the next six months. It saw declines for each indicator.
Deteriorating sentiment was seen in both the manufacturing and services sectors, with the index integrating the latter sector for the first time this month.
'Cooling down'
Clemens Fuest, president of the Ifo Institute, told CNBC on Tuesday that the numbers were disappointing and pointed to a number of challenges for the German economy.
"We think that one of the challenges is that many companies in Germany are running into capacity constraints," he told CNBC's "Street Signs." "We've seen a build-up in employment for a long time and this is slowing down."
"The second issue is that we have a very high level of orders, but new incoming orders are lower and that's why a lot of companies say, 'The current situation is very good but for the next six months we are less optimistic because there are less orders coming in,'" he added.
Fuest said that the index showed a "cooling down" rather than a "slowing down" in the economy and a degree of "normalization." "It's possible we've seen the peak of the upswing," he added.
He said integration of the services sector into the index was an important change to the methodology behind the index.
Economists including Carsten Brzeski noted that the rebased index change had affected the results that he said "should be taken with a pinch of salt."
Brzeski agreed that talk of a slowdown was premature, saying that he believed that "Germany is currently in the middle of a difficult combination of negative one-offs, dropping optimism and strong fundamentals."
"The main reasons for the disappointing start of the year in Germany are one-offs, like the harsh winter weather, vacation and high levels of sick leave due to the flu, combined with some sentiment normalization. And instead of a slowdown, fundamentals are actually pointing to solid growth in the coming months, albeit less dynamic than last year," Brzeski said.
Central bank watching
The survey results will not have gone unnoticed by the European Central Bank (ECB), which continues to pump money into the euro zone economy via its quantitative easing program. The bank is widely expected to make its first interest rate hike in 2019.
Joerg Kraemer, chief economist at Commerzbank, said the Ifo survey pointed to a downward trend in the German economy and could prompt the bank to delay a rate hike.
"The declining momentum should already become apparent in the first quarter, for which we expect gross domestic product (GDP) growth of only 0.4 percent quarter-on-quarter for Germany, whereas GDP grew by 0.6 percent in the fourth quarter," Kraemer said in a note.
"Sooner or later, this will also impress the ECB, which has reacted sensitively to growth slowdowns in recent years. We therefore recently postponed our forecast for the date of the first ECB interest rate hike from June 2019 to September 2019."