By Maria Martinez
BERLIN (Reuters) -German business morale deteriorated slightly in September, falling for the fifth month in a row and underlining recession fears in the euro zone's largest economy, a survey showed on Monday.
The Ifo institute said its business climate index stood at 85.7, a decline from a revised August figure of 85.8 but above the 85.2 forecast by analysts in a Reuters poll.
"The German economy is treading water," Ifo president Clemens Fuest said.
The institute's head of surveys, Klaus Wohlrabe, said a third-quarter contraction was likely, following stagnation in the second quarter.
The German economy is seen at risk of sliding into its second recession in a year after shrinking in the last quarter of 2022 and the first quarter of 2023.
"German businesses, as well as politicians and the entire economy, are gradually getting used to the idea that the economy is in for a longer period of subdued growth," ING's global head of macro Carsten Brzeski said.
He said the Ifo reading showed an unchanged economic picture, with the Chinese economy still not gaining momentum, high interest rates weighing on activity and continued policy uncertainty regarding the energy transition.
Companies were less satisfied in September than in the previous month with their current business situation, with the sub-index falling to 88.7 in September from 89.0 in August.
"The Ifo (index) confirmed that the German economy is extremely weak," Capital Economics senior Europe economist Franziska Palmas said.
The current conditions index, which has a better relationship with gross domestic product than the business climate index, now points to output falling by around 1% quarter-on-quarter, Palmas said.
"With household real incomes set to flatline over the coming quarters, and industry and construction firms facing a sharp drop off in new orders, we expect a further fall in GDP in the fourth quarter," she said.
Companies' pessimism regarding the coming months dissipated slightly, however, with the expectations sub-index recovering slightly, to 82.9 from 82.7 in the previous month.
Sentiment among German managers darkened further in services and construction, while it rose in manufacturing and trade, the survey showed.