German business morale sours on Ukraine crisis in March

German flags flutter in the wind on the Reichstag building in Berlin, September 23, 2013.

BERLIN - German business morale dropped for the first time in five months in March as firms in Europe's largest economy began to worry that a standoff with Russia and further sanctions over Ukraine would hurt them in a key market.

The business climate index by Munich-based Ifo think tank fell to 110.7 from 111.3 in February, data showed on Tuesday, missing a consensus forecast for it to drop to 111.0.

The closely-watched indicator is based on a monthly survey of some 7,000 firms.

"The March dip in Germany's Ifo index provides further evidence that the Ukraine crisis is spilling over with negative effect to hurt business confidence," said David Brown of New View Economics. "Germany's recovery could be put at risk the more the crisis deepens."

US President Barack Obama and major industrialised allies warned Russia on Monday it faced damaging economic sanctions if President Vladimir Putin takes further action to destabilise Ukraine following the seizure of Crimea.

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 have already warned that an escalation would result in catastrophic losses for firms.

However, even though expectations for future business dropped, firms continued to be more upbeat about their current situation, Ifo President Hans-Werner Sinn said.

Data last week already showed German analyst and investor sentiment plunged in March at the fastest pace in nearly a year on fears over Ukraine. Firms have also reacted.

Lemken, a German manufacturer of ploughs and other farm machinery, has seen a big drop-off in orders from Russia, its second-biggest export market after France, in recent weeks as a sliding rouble raises their sale price.

German generic drugmaker Stada Arzneimittel on Monday scrapped its 2014 outlook, blaming a slide in the Russian and Ukrainian currencies against the euro and uncertainty over business prospects in Russia, its second-biggest market.

Germany's "wise men" council of economic advisers said last week that the Ukraine crisis was the biggest threat to growth globally, and especially in Germany, because of Russia's importance as an energy exporter.

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