Germany's key business sentiment index hit its lowest level in almost two years in April, adding to evidence of a slowing economy and backing the case for further monetary easing by the European Central Bank.
The closely watched Ifo index today slipped to 92.5, extending its 11-month slide, causing the euro to fall one percent to six-month lows against the dollar below $0.87.
French consumer spending data added to the impression of a sputtering euro zone economy, showing a 0.8 per cent fall in April for a 3.2 per cent rise year on year.
Economists said that Germany's economic prospects were crumbling from the aftershock of the US downturn and predicted the ECB would trim interest rates from their current 4.5 per cent in the next few months to shore up confidence.
However, in a Reuterspoll last week, only one of 45 economists predicted a cut as early as tomorrow, when the ECB council meets next.
Economic advisors to the German government warned that this year's growth could fall short of the official two per cent forecast.
The Bundesbank said in its May monthly report, released this morning, that Germany grew by about 0.5 per cent quarter-on-quarter in the first three months of 2001 as companies continued to clear order backlogs.