German analyst and investor sentiment fell more than expected in January, reinforcing expectations the economy will stagnate in the first quarter and undergo a sluggish recovery over the full year.
The Mannheim-based ZEW economic think tank said tosday its monthly poll of economic sentiment fell for a fourth consecutive month to 47.2 from 50.4 in December, undershooting the consensus forecast for a reading of 49.5.
The euro hit a session low against the dollar after the data, which showed the index at its lowest level since July, and Bund futures extended losses.
Germany emerged from its deepest post-war recession in the second quarter of 2009, when the economy grew 0.4 per cent from the prior three months, and the rate of expansion picked up to 0.7 per cent in the July-September period.
But GDP figures for 2009 released last week suggested the economy may not have grown at all in the last quarter and Economy Minister Rainer Bruederle said last week that growth in the first quarter of this year could be close to zero.
The outlook for Germany's key industrial sector is also overshadowed by the most recent orders data, which showed waning demand in November that will eventually feed into production figures and growth down the line.
Industrial conglomerate Siemens said last week that trading conditions remained tough and downward pressure on selling prices would impact revenues over the coming quarters.
The company, a bellwether of the euro zone's biggest economy due to its broad product range, expects sales in the year to end-September to have dropped compared to the previous year.
Finance minister Wolfgang Schaeuble on Tuesday said the German economy faced an uncertain outlook and economists took a sober view of its prospects this year.
International Monetary Fund officials yesterday said Europe's recovery depended on continued support from fiscal and monetary policy.
Chancellor Angela Merkel's centre-right coalition government has approved some €8.5 billion in tax relief this year in the hope of boosting growth.
Yesterday, the Finance Ministry confirmed the government will increase its 2010 growth forecast to 1.5 per cent from a previously expected 1.2 per cent.
Despite the fall in the ZEW's economic sentiment indicator, its index on current conditions, also released today, rose to -56.6 in January from -60.6 in December.