Germany business confidence has unexpectedly dropped for the first time in nine months, prompting fears that the recovery of the euro-zone's largest economy may stall before ever getting started.
The Ifo Economics Institute in Munich warned yesterday that a strong euro had hit its index of business confidence, resulting in a "small warning signal for economic recovery".
"It is now more important than ever to give investors confidence in the continuation of the reforms and to keep the exchange rate under control," said Mr Hans-Werner Sinn, Ifo president.
The economics minister, Mr Wolfgang Clement, said the German government would press ahead with its reform programme, but called the latest Ifo index "a clear warning shot no one should ignore".
He suggested the slump wasn't because of uncertainty about the government's appetite for reform but rather the policies of the European Central Bank (ECB).
Mr Clement urged the Frankfurt-based ECB to "pay close attention to the consequences of its monetary policy" on the euro exchange rate.
German union officials were less diplomatic. "A cut in interest rates is overdue - if only for the fact because it will take a certain amount of time before it is felt," said Mr Heinz Putzhammer, a board member of the Federation of German Unions (DGB). Employer groups said calls for a rate cut were premature.
The euro has gained 17 per cent against the dollar in the last year, hitting a record high of $1.2930 last week.
Yesterday's Ifo slump from 97.5 to 96.4 points marks the end of a record rise for the index, which is still at its highest level since the start of 2001.
Meanwhile across the Atlantic, the latest US confidence survey also disappointed.
The The Conference Board, a private research firm, said its index of consumer confidence dropped to 87.3 in February from a downwardly revised 96.4 in January.
