Frankfurt -- German business confidence hit an all-time low in February, the key Ifo index showed Tuesday, with analysts warning it would take time for Europe's biggest economy to stage a rebound.

The Ifo indicator dipped to 82.6 points after a rising slightly to 83 points in January, the Munich-based Ifo said, prompting UniCredit economist Andreas Rees to note: "It is a long and winding road towards stabilization in Germany."

Ifo president Hans-Werner Sinn agreed that the results "do not signal a cyclical turning point."

Bright spots were nonetheless visible in a sub-index that measures the six-month outlook, which rose for the second straight month to 80.9 points.

Overall however, the February figure fell just below the revised level of 82.7 points in December, the previous all-time low since German reunification in late 1990.

"The worsening of the business situation that has been going on for months has continued in February," the statement quoted Sinn as saying.

Germany is in its deepest recession since World War II, and a sub Ifo index that measures the current business situation dropped to a six-year low of 84.3 points.

Breaking the data down further, the trend-setting core manufacturing sector continued to slump heavily, while improvements were reported by retailers.

Among auto distributors in particular, a German government incentive for drivers to turn in old clunkers and buy new cars "seems to be having an effect" more quickly than expected, the statement and analysts said.

Some observers suggested that the rising six-month outlook indicated company executives felt the German economy could be near the low point of a recession that began in the second and third quarters of 2008.

On Tuesday however, analysts were cautious, and said that a true recovery was probably still some way off.

"The decisive six-months average of the Ifo expectations component still points down," said Commerzbank chief economist Joerg Kraemer.

"Despite signs of stabilisation it does not yet signal the end of the recession," he stressed.

Wholesalers polled by Ifo were cautious regarding both their current prospects and the six-month outlook, while construction executives joined retailers in voicing a bit more optimism on both accounts.

For Capital Economics economist Jennifer McKeown, the Ifo data along with figures on French spending and Italian consumer confidence "have brought tentative signs of light at the end of the tunnel for the eurozone economies."

But with Ifo's current situation index at its lowest level since January 2003, German industrial output would probably "go on falling pretty rapidly at the start of this year at least," she said,

McKeown forecast German output and that of the eurozone as a whole would contract by around 3.0 percent this year, and all analysts saw the Ifo data as another reason for the European Central Bank to reduce its main interest rate to all-time lows of 1.50 percent or lower.

Berlin believes the German economy will shrink by between 2.0 and 2.5 percent in 2009.

The Ifo report lent itself to wide interpretation, with Martin Lueck at UBS and IHS Global Insight's Timo Klein both seeing signs that the German recession could be near its nadir.

"Lead indicators are close to their bottom, despite the drop in the headline number," Lueck said.

Citi analyst Juergen Michels took the other view, and after including data on manufacturing confidence for France and the Netherlands, along with a drop in eurozone orders in December, concluded that "the recession in the euro area is deepening."

William Ickes/AFP/Expatica