German business morale falls to near 16-year low -Ifo

Source: Agencies  |   2008-11-24  |     ONLINE EDITION

GERMAN corporate sentiment fell sharply in November to its lowest level since February 1993 as manufacturers and retailers grew more gloomy about the economic outlook, a leading survey showed today.

The Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, declined to 85.8 in November from 90.2 in October.

Economists surveyed by Reuters had expected a more modest fall in the index to 88.7. The euro briefly fell against the dollar after the weaker-than-expected reading, but Bund futures eased on relief that the Ifo was not worse.

"By now even the most optimistic companies will have realised just how deep this crisis really is," said Gunnar Meyke, an economist at DekaBank.

Ralf Umlauf at Helaba said the data would boost expectations of a significant cut in euro zone interest rates by the European Central Bank.

Germany fell into a recession in the third quarter of the year but economists fear the worst is yet to come as businesses rein in investments and nervous consumers curb their spending in anticipation of a deep downturn and job cuts.

The German government has unveiled a 500 billion euro rescue package for the domestic financial sector, but fewer banks than hoped have made use of it and many remain reluctant to lend.

Chancellor Angela Merkel's coalition has come under criticism at home and abroad for not complementing the banks' rescue with a bold economic stimulus plan.

A 15-point fiscal package agreed by the cabinet in early November is worth an estimated 0.5 percent of gross domestic product (GDP) over the next two years, far less than what some economists say Germany needs and can afford.

"The situation in the German economy is getting more precarious," Ifo economist Klaus Abberger told Reuters in an interview.