Germany's closely watched Ifo business climate indicator plunged to a near eight-year low in September, adding to a raft of gloomy economic signals putting pressure on the European Central Bank to cut rates.
Ifo said today the headline West German business climate index came in at 85.0 sharply below predictions it would fall to 88.1 against 89.5 in August.
It is Ifo's first survey entirely based on data collected after the September 11th attacks and shows business sentiment at its lowest level since Europe's largest economy started to reemerge from its post-unification recession in 1993.
The euro fell sharply against the dollar in reaction to the gloomy survey to its lowest level since the September 11 attacks. The German benchmark DAX index also dipped, trading 1.3 per cent lower at 4,514.2 at 9.20 a.m.
As European inflation falls - with the annual rate dipping to 2.5 per cent in September - market participants have said the ECB has more leeway to trim its key lending rates, maybe even at its rate-setting meeting next week.
But as recently as yesterday, ECB board member Mr JeanClaude Trichet said the central bank did not believe it had immense room for action on interest rates.
Germany's export-oriented firms have been hit hard by the global slowdown and corporate layoff announcements have gathered pace since the suicide attacks on the US.
Manufacturing conglomerate Siemens AG, car maker Adam Opel AG and bank Commerzbank AG became this week the latest big firms to announce job cuts.