German confidence at lowest for 14 months

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The Independent Online

Fears that the European economy is heading for a sharp slowdown grew yesterday after it emerged that confidence among German businesses had dropped to a 14-month low.

Fears that the European economy is heading for a sharp slowdown grew yesterday after it emerged that confidence among German businesses had dropped to a 14-month low.

A survey of Europe's largest economy showed that leaders of German firms were the most pessimistic since October 1999. It was the seventh month of falling confidence in a row. The fall also raised the chance of imminent interest rate cuts, further boosted by figures showing inflation falling in the eurozone.

The two key components of the index - current business conditions and expectations for future growth - both fell. The research institute IFO, which carried out the poll of 6,000 firms, said the German economy was likely to carry on slowing but doubted it would lead to a recession. The survey knocked the euro, which fell to five-day lows against the dollar and two-week troughs against the yen. At one point the euro fell almost a cent on the day to $0.9291, its lowest since January 17.

Marco Kramer, a European economist at BNP Paribas, said this was consistent with GDP growth just above 2.1 per cent. "This is a serious slowdown compared with the 3.1 per cent growth recorded for 2000."

Inflation in the eurozone dipped to 2.6 per cent in the year to December, down from 2.9 per cent in November. This meant prices rose 2.3 per cent during 2000, still above the ECB's ceiling of 2 per cent. The core rate, excluding energy and food, was unchanged for the third month in a row at 1.5 per cent.

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