Sharp fall in German business sentiment

GERMAN BUSINESS sentiment has fallen sharply this month as Europe's largest economy showed signs of weakening in the face of global economic storms and the strength of the euro.

The Munich-based Ifo institute reported that its business climate index had dropped from 104.8 in March to 102.4 this month, its lowest level since January 2006.

The news coincided with the government's announcement that it was cutting its growth estimate for 2009.

Trade and wholesale prices data for Ireland also released yesterday showed the strong euro is hurting Irish exporters and pushing down prices.

Michael Glos, Germany's economics minister, said German gross domestic product would increase in real terms by 1.2 per cent next year, down from an original target of 1.4 per cent, and said he expected growth to reach 1.7 per cent this year.

"The economy is still growing, but it faces strong headwinds," Mr Glos said, adding that the government expected the pace of growth to accelerate again in the course of 2009.

The latest drop in the Ifo index more than reversed rises in the previous three months, and suggested the impact of a stronger euro, higher oil prices, a looming US recession and global financial turmoil was finally taking a toll.

Industrialists in Germany have been upbeat this year and there have been scant signs of a local "credit squeeze".

But Hans-Werner Sinn, Ifo's president, said the economic forces that had been braking growth since the middle of last year "have regained strength".

The German data came just hours after France also reported increased gloom over the economic outlook. Insee, the country's statistical office, reported a sharper than expected fall in it business sentiment index, from 108 in March to 106 this month - the lowest level since December 2006.

In another telling sign, Belgium's business confidence indicator, regarded as a bellwether for the 15-country euro zone, saw its biggest-ever monthly drop in April, according to figures earlier this week. - (Financial Times service)