×

UPDATE 1-German business morale falls as managers' near-term outlook clouds

(Adds survey details, analysts, background)

BERLIN, Feb 22 (Reuters) - German business confidence fell

more than expected in February while remaining at a high

level, a survey showed on Thursday, suggesting that Europe's biggest economy is set for solid growth in the first quarter of this year.

The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, fell to a 5-month low of 115.4 from 117.6 in January.

The February reading undershot expectations in a Reuters consensus forecast of analysts who had forecast a dip to 117.0.

Ifo chief Clemens Fuest said companies were less satisfied with their current business situation, but the indicator still was at its second-highest level since 1991.

"This signals economic growth of 0.7 percent in the first quarter," Fuest said. This compares with a quarterly growth rate of 0.6 percent in the final quarter of 2017.

"After the euphoria of recent months, companies' assessments of the business outlook for the months ahead were also far less optimistic," Fuest said.

The drop in the headline figure was mainly caused by managers scaling back their business expectations for the next six months, with the respective sub-index falling to the lowest level since April last year.

"The Ifo business climate index is a clear damper. Apparently, the combination of a stronger euro and rising (interest) rates is causing major concerns among chief executives", Thomas Altmann from fund manager QC Partners said.

A sector breakdown of the Ifo figures showed the main drag came from manufacturing, where the mood among managers had hit a record high in the previous month. Business sentiment also deteriorated in wholesaling, construction and retailing.

Ifo economist Klaus Wohlrabe said the fall in the business sentiment indicator did not mark the beginning of a fundamental shift for the German economy.

"I would not yet speak of a change in the underlying trend, the German economy is still doing very well, but some of the steam has been let off," Wohlrabe told Reuters.

He added that the coalition deal reached by Chancellor Angela Merkel's conservatives and the centre-left Social Democrats had not been a cause for jubilation among managers.

The Ifo figures chimed with other sentiment surveys released earlier this week that showed growth in Germany's private sector slowed in February while investor sentiment also deteriorated. (Reporting by Michael Nienaber; Editing by Paul Carrel and Toby Chopra)