* Ifo falls more than expected
* Firms remain confident about current business
* German fundamentals intact, but Ukraine, Iraq could hurt
(Adds details, background)
By Annika Breidthardt
BERLIN, June 24 German business sentiment
weakened more than expected in June as concern grew among
companies in Europe's largest economy that tensions in Ukraine
and Iraq would hurt their business.
The Munich-based Ifo think tank's business climate index
dropped to 109.7 from an unrevised 110.4 in May, marking its
second consecutive monthly fall.
Expectations in a Reuters poll of 40 economists had been for
the index, which is based on a monthly survey of some 7,000
firms, to fall to 110.2.
"The German economy fears the potential impact of the crises
in Ukraine and Iraq," Ifo president Hans-Werner Sinn said in a
German firms have been concerned since early this year about
tensions in Ukraine, fearing that tougher sanctions could hurt
their business. Iraq's fight against a Sunni insurgency has
pushed up oil prices on fears of potential supply disruptions.
More than 6,000 German companies are active in Russia and
business and trade bodies have warned that an escalation in
tensions over Ukraine would result in catastrophic losses for
On Monday, the European Union urged Russia to back President
Petro Poroshenko's peace plan for Ukraine, but its threat of
tougher sanctions if Moscow failed to do so appeared to have
only partial support.
TAKING A TOLL
"Global uncertainties are taking their toll," said economist
Holger Schmieding of Berenberg bank. "Germany's domestic
fundamentals remain solid," he added, pointing to strong
employment, low inflation and buoyant construction.
"(But) we need to watch the situation in Ukraine, Russia and
Following 0.8 percent growth in the first three months of
the year, the government expects economic growth to slow. It
forecasts growth of 1.8 percent for the year as a whole on the
back of strong domestic demand and a healthy jobs market.
Ifo said firms expected their outlook to worsen, with a
sub-index dropping to the lowest level since October 2013. They
remained confident about current business, with a sub-index on
conditions holding steady.
The data is likely to keep pressure on the European Central
Bank (ECB) to ease policy even further in coming months,
especially after data on Monday showed that German manufacturing
output increased at its weakest rate since September. Service
sector growth also slowed.
But Ifo economist Klaus Wohlrabe said the ECB's move to cut
interest rates to record lows and offer new long-term loans to
banks to help boost lending to euro zone companies had had
little effect on the German economy.
"The financing climate was and is good," said Wohlrabe.
(Reporting by Berlin Newsroom; Editing by Stephen Brown)