German corporate sentiment plunged to its lowest level in nearly 16 years in November, a leading survey showed, reinforcing concerns that Europe has entered a deep recession that will last well into next year.
The Ifo economic research institute said today that its closely-watched business climate index, based on a monthly poll of around 7,000 firms, fell to 85.8 in November from 90.2 in October.
It was the biggest month-on-month drop since immediately after the September 11th, 2001 attacks on the United States and was far below a Reuters consensus forecast of a drop to 88.7.
Fuelling the drop in the main index, which sank to its weakest level since Feb. 1993, was a sixth straight fall in the expectations component to a post-reunification low of 77.6.
The euro fell against the dollar and Bund futures eased following the release of the survey, which was conducted from the start of the month until last Friday.
"It seems as if a wildfire is running through the German economy at enormous speed," said Carsten Brzeski, an economist at ING Financial Markets. "If you think the third quarter was bad, just wait for the fourth quarter. It might be a disaster."
Germany fell into a recession in the third quarter of the year but economists fear the worst is yet to come as businesses rein in investments and nervous consumers curb their spending in anticipation of a deep downturn and job cuts.
The Ifo index reinforced expectations that the European Central Bank will continue to push down euro zone interest rates in the next few months.
The ECB, which holds its next policy meeting on December 4th has made two 50 basis point cuts since October, taking its benchmark rate down to 3.25 per cent.
"The situation in the German economy is getting more precarious," Ifo economist Klaus Abberger told Reuters in an interview. "There's hope the ECB will react with a significant interest rate step before Christmas."
The German government has unveiled a €500 billion rescue package for the domestic financial sector, but fewer banks than hoped have made use of it and many remain reluctant to lend.
Chancellor Angela Merkel's coalition has come under criticism at home and abroad for not complementing the banks' rescue with a bold economic stimulus plan.
Instead it opted in early November for a targeted 15-point fiscal package worth 0.5 per cent of gross domestic product over the next two years, less than many economists believe is needed.
Ifo said the manufacturing and retail sectors had become much more gloomy about their outlook in November, confirming data last week which pointed to a sharp deterioration in the economy.
Reuters