The September slide in Germany's Ifo index could be the result of recent Euro strength, according to economists, while the broader economy remains in rude health regardless.

The German Ifo Business Climate index edged lower for the month of September, according to the latest reading released Monday, although most say the German economy remains in rude health and growth could accelerate toward year-end.

September’s Ifo index fell further than was expected, from 115.9 to 115.2, against economist forecasts for a reading of 116.0. The survey polls more than 7,000 German businesses, asking them to rate the relative health of conditions in their respective industries.

“While the Ifo suggests that business sentiment dipped ahead of yesterday’s federal election, we suspect that a more likely cause of the decline is the recent strength of the euro, rather than political uncertainty,” says Stephen Brown, a European economist at Capital Economics.

Both the current activity and the expectations components of the index declined for September, while the current activity component had also posted a fall in August. However, the elevated level of the index still points toward solid growth for the German economy in the third quarter.

“Despite the fall in the BCI, on past form it still points to a sharp rise in annual GDP growth from Q2’s 2.1% to around 4%,” says Brown. “We still think that annual GDP growth will be around 2.3% this year, the strongest since 2011.”

The Euro was little changed in response to the release although it is broadly lower on the morning in the wake of Sunday’s election outcome.

The common currency slipped 0.35% against the Dollar during early trading in London, to be quoted at 1.1904, while the Pound-to-Euro rate advanced by 0.67% to reach 1.1364.

Election Stalls Eurozone Integration But ECB to Support Euro

The German election on Sunday saw electoral support migrate away from the traditional pillars of German politics and into the hands of smaller alternative parties who threaten a shakeup of the status quo in Berlin.

“Coalition talks will be difficult, they always are. After losing heavily to the AfD in Bavaria, CSU will be prickly, as will the resurgent FDP and the left wing of the Greens. But Merkel is good at bridging such differences,” says Holger Schmieding, chief economist at Germany’s Berenberg.

Sunday’s election ends the grand coalition between Merkel’s CDU and Martin Schultz’s CSU and marks the beginning of what could be weeks-long period of coalition building for Chancellor Angela Merkel. The most likely outcome is seen as a so-called Jamaica coalition involving the CDU, the Green Party and Die Link.

“This will mean slightly lower taxes than under the alternative of another grand coalition, which should boost growth over the next year or two. But the new government will also be less open to immigration and euro-zone integration, which will do the economy no favours further into the future,” says Jennifer McKeown, chief European economist at Capital Economics.

With that said, and as the morning’s Ifo data highlights, the German economy remains in a robust condition while the key issue for the Euro currency going ahead is whether or not the ECB pushes ahead with the tapering of its quantitative easing program in October.

Mario Draghi will speak about monetary policy in Brussels at 15:00. Strategists have noted that the European Central Bank president will need to expand on previous hawkish comments if the Euro is to be saved from further downside against the Dollar over the course of the week.

“We note that EUR/USD is very close to good support levels at 1.1860/1900 and failure of Draghi to give the EUR a boost today could leave it more vulnerable to US tax reform later in the week,” says Chris Turner, head of foreign exchange strategy at ING Group.

However, propping up the Euro on foreign exchange markets runs counter to the ECB’s recent objectives.

In fact, the morning’s weakness plays directly into the hands of ECB policy makers who have been hoping the common currency will ease back from recent highs before they commence the tapering of Eurozone quantitative easing in October.

As such, Draghi’s Monday appearance in Brussels could leave Euro bulls disappointed and may offer the Pound-to-Euro rate scope to appreciate further in the very short term at least.