German corporate sentiment unexpectedly worsened this month to its lowest level since reunification in 1990, raising pressure on the European Central Bank to make further interest rate cuts to support the economy.
The Ifo economic research institute said today its business climate index, based on a monthly poll of around 7,000 firms, fell to 82.6 in February from 83 in January, dragged down by deepening gloom on the state of the global economy.
"Hopes that the battered economy might be about to turn around took another backlash today," Carsten Brzeski, an economist at ING Financial Markets, adding that the ECB would be forced to respond to the latest decline in sentiment.
"While other central banks have continued monetary easing since the beginning of the year, the ECB stood aloof, taking a period of reflection. Next week, the ECB will clearly get back into action and cut rates by at least 50 basis points," he said.
The survey showed that firms took a bleaker view of current business conditions than in January, but that their expectations for the next half year had risen for a second straight month.
Still, Ifo said in a statement that German firms remained "basically sceptical" about the outlook. "On the whole the survey results don't signal a cyclical turning point," the institute said.
Corporate Germany, which profited from a boom in foreign demand in recent years that made it the world's biggest exporter of goods, is now suffering acutely from the global downturn.
The industrial sector has been especially hard hit, causing problems for the country's carmakers, and sentiment among manufacturers declined further in February, Ifo said.
Assembly lines at some Volkswagen plants in Germany fell silent today as Europe's biggest carmaker switched to a short working week for the first time in 26 years.
Reuters