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December 18, 2008    

German business confidence falls to 18-year low

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by Kay Murchie

Business sentiment in Germany has taken a battering after a business index from the Ifo research institute revealed a sharp drop this month to a low not seen since 1990.

Europe’s largest economy is set to be in for a challenging year believe economists since just a month ago, official figures revealed that the country is now in recession after gross domestic product (GDP) fell by 0.5% in the third quarter.

Meanwhile, exporters have been badly hit as a result of the global economic downturn and Ifo’s business climate index, which is based on a poll of 7,000 companies, dropped from 84.0 in November to 82.6 in December.

According to the institute, such a low reading has not been experienced since German reunification 18 years ago.

Ifo President, Hans-Werner Sinn, said the dominant feature of the December decline is the worsening of the firms’ current business situation.

However, the data does not come as a surprise to economists, Ralf Umlauf of Helaba bank said German economic prospects remain clouded and he believes that there is now more reason for the European Central Bank to make further cuts in interest rates.

In related news, earlier this week a euro zone purchasing managers’ index (PMI) for December compiled by Markit, the data and research group, fell to 38.3 points, its lowest level since the survey began a decade ago.

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