Financial crisis sends German business confidence tumbling

28th October 2008, Comments 0 comments

The closely watched Ifo business confidence index dropped more than expected to 90.2 points this month.

Berlin -- German business confidence plunged to its lowest level in more than five years this month, a key survey released Monday said, as the world financial crisis triggered panic selling on global stock markets and fears grew about a looming recession.

The closely watched Ifo business confidence index dropped more than expected to 90.2 points this month from 92.9 points in September, adding to the prospects of the European Central Bank cutting rates again possibly as early as next meeting on Nov. 6.

Analysts had predicted that the index, which is drawn up by the Munich-based Ifo economic institute, would fall to 91 with the indicator also representing a major test of sentiment in Europe's biggest economy following the global share meltdown.

"German firms are anticipating declining business activity," said Ifo chief Hans-Werner Sinn with Germany's key manufacturing sector expecting. "They are expecting a clear worsening of their business over the coming six months" as key global export markets contract.

The deepening sense of gloom in Germany's boardrooms also came as European companies roll out a bleak set of third-quarter profits and warn about tough times ahead.

Based on a survey of 7,000 German executives, the Ifo climate index's drop in October represented the indicator's fifth consecutive monthly fall.

While the German industry leaders' assessment of current business conditions essentially remained unchanged, their expectations for six months down the track dropped from 86.5 points last month to 81.4 points.

"The economic downturn in Germany has once again clearly gained momentum," said Commerzbank economist AG Ralph Solveen.

The latest Ifo report comes in the wake of a slew of major economic sentiment surveys, which are pointing to a bleaker outlook taking shape across Europe.

The mood among industry leaders in France, the 15-member eurozone's second biggest economy, fell to a 15-year low, a survey released this month said.

In the meantime, another key survey released earlier this month showed German investor confidence plunging in October as the world financial crisis took hold.

Reports due to be released Tuesday are expected to show consumer confidence in both France and Germany falling amid worries about a deep and protracted recession.

This also helped to drive the euro down against the dollar with the common currency slumping below 1.24 dollars Monday. The euro stood at a record of more than 1.60 dollars in July.

The fall in the euro combined with dwindling inflationary pressures as a result of a drop in oil prices having also given the ECB room to move to trim interest rates.

Andrew McCathie

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