German confidence plummets

Business confidence in Germany has dived to its lowest level for more than two years during the past month, underlining the fragile state of the German economy.

The gloomy results of the widely-followed Ifo economic research institute's business survey were seen as further vindication of the Bundesbank's surprise cut in interest rates on Thursday.

Michael Clauss, an economist at investment bank CSFB, said: ``Interest rates will have to stay very low for the foreseeable future. There must be no risk that they will go up.''

The Bundesbank's action, ahead of Sunday's meeting of G7 finance ministers in Washington, makes plain its concern about the state of the economy. It hopes the half-point reduction in the discount rate to 2.5 per cent, matching its all-time low, will help both by lowering long-term interest rates and bringing down the mark's value against the dollar and sterling.

The central bank has engineered the right conditions for these results by signalling that it will reduce the repo rate, its key money market interest rate, during the coming weeks. It was left unchanged on Thursday.

The pound jumped more than half a pfennig for the second day running yesterday, climbing to its highest level for six months. Sterling rose to DM2.2858 from the previous close of DM2.2796.

Despite the clear signs of slowdown during the past few months, economists were surprised by the scale of the decline in business sentiment last month. The Ifo index for West Germany fell for the fourth month, from 91.8 to 90.4, the lowest since December 1993. The index for East Germany fell from 102.4 to 100.5.

``It is surprising to see confidence falling in spite of better retail conditions and the monetary easing we have seen,'' said Julian Callow of Kleinwort Benson. He said it was a signal of the depth of the problems facing German industry.

On top of structural problems such as high labour costs, businesses have been suffering from the strength of the mark last year and weakness in Germany's main export markets. Mr Clauss of CSFB said: ``There is a lot of disappointment that exports have not yet picked up after the Deutschmark weakening we have seen so far.''

The trade-weighted index for the currency has fallen just over 5 per cent from its early-1995 peak, but export growth has slowed, and orders have slumped this year.

The dismal export picture has been reflected in the broader measures of the economy. The most recent figures show industrial output 4.8 per cent lower in February than a year earlier, and manufacturing orders 4.9 per cent down on the year.

However, most economists still agree with the official assessment that growth will start to pick up again later this year.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum