Mar 25 - German business morale has dropped for the first time in five months. As Sonia Legg reports the figures suggest firms in Europe's largest economy are beginning to worry that a standoff with Russia and further sanctions over Ukraine will hurt them.
Germany's economy has been gliding along gracefully in recent years but the spring as brought change Business morale dropped in March for the first time in five months. Firms in Europe's largest economy are beginning to worry about Russia and sanctions over Ukraine. The key Ifo index, which surveys 7,000 companies, fell below 111 points missing a consensus forecast. Jane Foley is from Rabobank. (SOUNDBITE) (English): JANE FOLEY, SENIOR CURRENCY STRATEGIST, SAYING: "The forward looking component is a little bit more anxious a little bit more uncertain. You have got to remember the bilateral trade between Russia and Germany is really very significant so it is quite likely that we will see the forward looking components of this Ifo a little bogged down, a little concerned about the progress in the political arena." Germany receives more than a third of its gas and oil from Russia. More than 6,000 German firms are active there. And business associations and trade bodies are warning any escalation could be catastrophic. Klaus Wohlrabe is IFO's co-ordinator. (SOUNDBITE) (German) IFO INSTITUTE'S COORDINATOR FOR POLLS, KLAUS WOHLRABE, SAYING: "Right now, we don't see Russia turning off our gas supplies but psychologically, it might play a role. We are seeing German companies halting investments in Russia and pulling money out. So far, we don't see a decline in exports but if sanctions were to be drastically increased, there could be counter-reactions from the Russians and then German exports could drop." Drugmaker Stada Arzneimittel has scrapped its 2014 outlook due to a slide in the Russian and Ukrainian currencies and uncertainty over prospects. Farm machinery maker Lemken has also reported a big drop-off in orders as the sliding rouble raises their sale price. Russia is both firms' second biggest market. The economy overall though doesn't need to worry about too many ugly ducklings. Ifo remains optimistic and continues to forecast strong growth.