A display board depicts the German Stock Index, DAX, at 12,976.24 points at the stock exchange in Frankfurt, Germany, Wednesday, Oct. 4, 2017. (Arne Dedert/dpa via AP)
INTERNATIONAL - German business morale deteriorated unexpectedly this month after hitting a high the previous month, a survey showed yesterday, suggesting that political deadlock in Europe’s economic powerhouse was clouding the outlook.

Chancellor Angela Merkel is struggling to form a stable government after her Conservatives lost voters to the Far Right in September’s election and her attempt at a three-way alliance with two smaller parties failed last month.

The Ifo Institute for Economic Research in Munich said its business climate index, based on a monthly survey of about 7000 firms, edged down to 117.2 from an upwardly revised reading of 117.6 last month, which was the highest on record.

The reading this month came in lower than a Reuters consensus forecast for a value of 117.5.

The slight drop in the headline figure was driven by managers’ less optimistic business expectations while their assessments of the current situation were more positive.

Overall business morale remained on a relatively high level, Ifo chief Clemens Fuest said, adding: “German businesses are full of festive spirits.”

Ifo economist Klaus Wohlrabe warned against over-interpreting the drop. “If the situation is already very good it is even more difficult to expect better business,” he said.

Wohlrabe said that uncertainty among German businesses over the shape of the new government, which is likely to include Merkel’s Conservatives and the centre-left Social Democrats (SPD), had risen slightly.

Michael Holstein from DZ Bank said the figure this month was still the second-highest Ifo reading on record, adding: “The German upswing will continue.”