22 January 2001, 14:28  ECB unlikely to cut rates on Ifo figures - analysts

FRANKFURT (AFX) - The deterioration in German business climate in December, the seventh decline in a row, will not lead the European Central Bank to cut rates in a hurry, analysts said.
Ifo Research Institute earlier today said that west German business climate index fell to 96.5 in December from 97.0 in November while the the business assessment index was 92.0 in December from 92.4 in November.
The west German business expectations index was 101.1 in December, down from 101.6 in November, and down from 108.3, Ifo said.
Market reaction to the Ifo data was limited, as it was broadly in line with expectations, dealers said, adding that the December business climate index -- a key barometer of sentiment in the biggest European economy -- remained above the five-year monthly average of 95.0.
"Although the Ifo index came out slightly weaker-than-expected, it did not confirm fears of a reading below 95.00 (business climate)," Christoph Rieger at Commerzbank said.
"However, both the business assessment index as well as future expectations index have deteriorated slightly in December," he added. Before the Ifo released the data at 9.00 am GMT, the euro was hit by rumours that the December business climate index for western Germany would drop to below the long-term average of 95.0, dealers noted.
"At around 8.15 GMT the euro started to plunge, falling from around 0.9370 usd to 0.9300 usd just before the release. The euro-dollar rate seemed to have stabilised somewhat just before the Ifo release, but broke through the 0.93 level right after it," Rieger observed.
Although prospects of a sharp economic slowdown in the U.S. continued to weigh on European sentiment, today's Ifo data is not seen as too alarming, analysts said.
UBS Warburg said today's data ais re further evidence that the euro area is not immune to the U.S economic slowdown.
"However it will mainly be the industrial sector that suffers. Other parts of the economy are set to perform better. Hence, the ECB will be in no rush to cut rates. We stick to our forecast that the first cut is unlikely to come before April," UBS said.
Rieger of Commerzbank said he "would not interpret today's reading as a warning signal for the ECB to rush and cut rates."
"It shows that discouraging signals from the U.S. have an effect on business sentiment in the euro zone and Germany in particular. However, sentiment at these levels is not very worrisome as it is still above it's long term average (95.00)," Rieger said.
UBS Warburg said that although the Ifo index fell by less than it had expected, "today's release can hardly be described as good news." It said this meant that production growth will slow down in the early months of this year.
Lehman Brothers said in a note that "the decline was in line with our expectations, and represents the seventh consecutive monthly decline in the closely watched index."
Lehman said the two sub-indices both declined in December, with the decline in index of future expectations "having been somewhat more pronounced in the past seven months than the fall in the current conditions index."
It said accommodative monetary conditions, a move to expansive fiscal policy and strong balance sheets are likely to enable euro-area producers to maintain above-trend production growth in 2001.
"If the positive factors prevail, such a period would be characterised by high, relatively stable, confidence levels," Lehman said.

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