By Maria Martinez

BERLIN (Reuters) – German business morale fell for a fourth consecutive month in September, with a decline exceeding expectations, according to a survey released on Tuesday. This decline adds to indications that the euro zone's largest economy may have entered a recession.

Recent data revealed that German business activity contracted in September at the fastest rate in seven months, positioning the economy for a second straight quarter of declining output.

The Ifo institute reported a decrease in its business climate index to 85.4 in September from 86.6 in August, while analysts surveyed by Reuters had anticipated a reading of 86.0.

“The German economy is coming under increasing pressure,” remarked Ifo president Clemens Fuest.

The survey, conducted among approximately 9,000 company managers, indicated that most perceived the current situation as worsening. The current conditions index dropped to 84.4 in September from 86.4 in August, falling short of economists’ expectations for 86.0.

'DOWNWARD SPIRAL'

The forecast for the upcoming months also weakened, with the index declining to 86.3 in September from 86.8 in August.

“The German economy is on the edge of a downward spiral,” warned Ifo economist Klaus Wohlrabe in an interview with Reuters. He noted that Germany's economy, which contracted by 0.1% in the second quarter, could shrink more in the third quarter. Typically, two consecutive quarters of decline indicate a recession.

The business climate index fell across all sectors, except for construction, with manufacturing seeing the index plummet to its lowest level since June 2020.

“Another day, another downside surprise in the German economic surveys,” commented Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

Additionally, a purchasing managers' survey released on Monday illustrated that German business activity contracted more sharply than anticipated in September, as the downturn in manufacturing began affecting the wider economy.

The trajectory of sentiment indicators continues to decline, stated Commerzbank's chief economist Joerg Kraemer, adding that “German gross domestic product is likely to stagnate at best in the second half of the year.”