FRANKFURT (AFX) - Germany's Ifo business climate index came in well under even the lowest expectations, and is a precursor to more weak data in the coming months from Europe's largest economy, economists said.
The key West German index of business climate fell in February to 94.9 from 97.5 in January, the lowest level since July 1999, the Ifo economic research institute said. The keenly watched business expectations index, which is seen as indicating future trends in the headline index, fell to 98.5 in February from 100.3 in January.
Economists said that after mixed German data so far this year, today's figures are the first clear sign of Germany's vulnerability to the U.S. slowdown.
"Today's Ifo shows that the German economy is going downwards, and more weak data is to follow", said Stephan Rieke at BHF Bank.
"We are in a clear phase of cooling down, and Ifo is only the precursor of this for the moment", he added.
Guillame Menuet, economist at 4Cast, said the climate and expectations components had showed a dramatic softening in February. He noted the sharp fall in the business expectations index means it is unlikely the headline index will flatten out for some time to come. "This means we will not see a trough in Ifo until the end of the second quarter, and probably not until the third quarter", he said. Economists added the data puts further pressure on the ECB to make an interest rate cut in April, especially as it coincides with the 50 basis point cuts announced by the Fed yesterday.
4Cast's Menuet said the ECB is unlikely to change its neutral position immediately as it continues to point to risks from inflation. He added, however: "It (the Ifo) certainly increases the odds of an early April move."