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German business confidence hits four-year low

media The confidence of German business leaders has hit its lowest point since November 2014 AFP/File

Confidence among German business leaders was ground down to its lowest level in more than four years in May, a closely-watched survey showed Thursday, dampening the mood after tentative signs of spring optimism.

The Munich-based Ifo institute said its confidence index fell 1.3 points to 97.9, with the latest reading the lowest since November 2014.

"The mood among company managers has weakened further," Ifo president Clemens Fuest said in a statement.

"The German economy is still lacking in momentum."

However, some analysts insisted a closer look at the survey showed the outlook is not all bleak in Europe's largest economy.

Firms' judgement of the current business situation dropped, while their expectations for the coming months held firm, noted ING analyst Carsten Brzeski.

On the bright side, Brzeski highlighted official data released Thursday which confirmed GDP grew in the first quarter by 0.4 percent.

And the Purchasing Managers' Index (PMI), a forward-looking indicator for both manufacturing and services, posted a three-month high of 52.4.

"Despite the zigzagging of most leading indicators, the German economy has held up relatively well," Brzeski judged.

But despite "growing signs of stabilisation", he warns Germany's economy must prove it can weather the headwinds of "potential political uncertainty in the eurozone after the European elections, the escalating trade conflict between the US and China and higher oil prices."

The latest Ifo figures reflected a continued split in the German economy, with judgements of both the present situation and expectations for the coming months grimmer among manufacturing firms than services companies.

Germany's manufacturers are more reliant on exports, leaving them directly exposed to upsets in global trade and slowdowns in emerging markets like China.

A rare bright spot is the chemical industry, where optimism has taken the place of recent pessimism.

However, the business climate took a substantial hit in services firms.

Not since April 2013 has the indicator of current sentiment fallen as steeply as it did this month, while optimism for the coming months also declined.

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