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'Wake-up call' as German business sentiment falls

Should we be concerned about Germany?

German business sentiment fell in February, according to the closely-watched survey by the Ifo Institute, spurring concerns that Europe's economic motor is slowing down.

The Ifo business climate index showed that morale fell to 105.7 from 107.3 last month, below analyst forecasts in a Reuters poll for a reading of 106.7.

The data pile more gloom on to the outlook for Europe's largest economy which has seen its growth rate and manufacturing sector slow down.

An apprentice in the profession welder is working in a training center in Siegburg, Germany.
Unkel | ullstein bild | Getty Images

A preliminary purchasing manager's index compiled by Markit and published on Monday showed activity in Germany's manufacturing sector had fallen to a 15 month low in February, contributing to the wider slowdown in factory and services activity in the euro zone.

On Tuesday, it was confirmed that Germany's economy expanded 0.3 percent in the fourth quarter from the previous quarter, a growth rate that could prompt more concerns over the state of the economy's health.

Carsten Brseski, chief economist at ING-DiBa, said the latest Ifo sruvey was a "wake-up call."

"Global events have finally reached German companies' boardrooms," he said in a note on Tuesday. "All in all, today's Ifo index sends a strong wake-up call to the German economy: the easy and carefree life on the 'island of happiness' seems to be coming to an end."

"For the time being, solid domestic activity should avoid any real negative surprises. Growth on the back of the public sector, consumption and construction activity might shield the German economy from external headwinds, but is clearly not a strategy for sustainable growth in the medium run. Just ask the majority of Germany's euro zone peers," Brzeski warned.

Trouble ahead? Euro zone business activity declines further
Federalists' solution of fiscal union may be what's needed to preserve European project long term

In addition to economic worries, there are concerns surrounding German Chancellor Angela Merkel and her handling of the migrant crisis in Europe.

The prospect that the fellow economic strongman the U.K. could potentially leave the European Union in June when a referendum is held could also damage sentiment further.

This is a breaking story, please check back for updates.

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