FRANKFURT (MktNews) - The Ifo Institute's west German busines iment index fell more than expected in June, hitting its lowes l in almost five years and suggesting strongly that the larges omy in the 12-nation euro area is on the brink of recession.
The June decline of 1.3 point to 89.5 represents the twelfth ine in thirteen months and put the headline index at its lowes l since August 1996 (also 89.5). The latest reading was also h t below the median expectation in a Market News International nalysts.
The subindices for current conditions and future expectations strongly in June -- by more than a point each from May levels
The June Ifo decline may put renewed pressure on the European ral Bank to cut interest rates for the second time this year t t eurozone growth. However, such a move, should it take place, kely to occur before the end of August, when the ECB returns f -week summer recess.
With the index now below 90 for the first time since mid-1996 irming a sharp slowdown in German growth this year and maybe e ing recession in the manufacturing sector -- the question beco the trough will finally be reached.
Still, few macroeconomic imbalances exist in the eurozone, an Institute's German economic expectations index for July (one m d of Ifo) suggests that business expectations may have started up again in at least in some sectors of the economy.
The structural rigidities in Germany certainly make the econo vulnerable to exogenous shocks and less resilient to overcome equent downturn. Still, they are not the cause of the slowdown ld not impede a recovery once demand picks up again.
The recent decline in oil prices and firming of the euro's ex , if sustained, could well strengthen demand and bring down ation relatively quickly, a factor that could also help a rebo r in the year, if consumer demand picks up as a result.