Feb Result: 94.9
MNI Survey Median: 96.8
MNI Survey Range: 95.3 to 97.5
Previous Results: 97.5 (Jan), 96.8 (Dec), 97.0 (Nov), 97.1 (Oct)
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FRANKFURT (MktNews) - The Ifo Institute's west German business sentiment index fell much more than expected in February, more than wiping out the surprise rise in January and bringing business confidence to its lowest level in 20 months (July 1999).
The February decline is the eighth in the last nine months, excepting only January's surprise rise, and raises serious questions about the course of German economic growth this year.
This, in turn, will put renewed pressure on the European Central Bank to cut interest rates to boost eurozone growth.
Both Ifo current conditions and expectations subindices fell in February. Expectations dropped for the fourth month in a row, and eighth month in the last nine, to the lowest level since April 1999. The current conditions index more than reversed its rise in January, falling to the lowest level since October 2000.
With the index now below 95 for the first time since mid-1999, confirming a slowdown in eurozone growth this year, the question becomes how much further sentiment will drop. Given increasing signs of weaker growth in the United States and the world as a whole, it could well be that the index has not yet reached bottom.
If the index falls further in coming months, then German growth could slow below even the recently downwardly revised forecasts of Germany's major economic research institute, who now put growth this year at as low at 2.1%.
Concern about a further decline in Ifo is reinforced by the continued drop in the ZEW Institute's German economic expectations and current conditions indexes in March (one month ahead of Ifo), based on its survey of more than 300 experts at German firms.
The ZEW expectations index has fallen for 14 straight months to the lowest level since January 1999, while the current conditions index fell in March for the sixth straight month.