Germany's closely watched Ifo business confidence indicator has plunged by more than expected to a two-year low of 90.9 in May, confirming a deteriorating outlook for Europe's largest economy.
Data from the Munich-based Ifo's monthly survey published today showed the headline west German business climate index slipping from 92.5 in April and reaching its lowest level since May 1999.
The index, based on a monthly survey of 7,000 businesses, was well below economists’ predictions who forecast the Ifo to drop to 91.7. Forecasts ranged between 91.0 and 92.0.
Deteriorating business sentiment comes as recent data all point in the direction of a faltering economy in Germany.
The index is made up of two components, a business conditions index which measures companies' assessment of their current state, and an expectations components which reflects their views on business outlook.
Ifo's west German business conditions index fell to 86.9 from a revised 88.4 in April, while the expectations index fell to 95.0 from 96.6.
The main index for east Germany fell to 104.7 from 102.8 in April.
Several economic institutes have been cutting their forecasts for economic growth in Germany to below two per cent, with one of them, the DIW, saying this week that the country was at risk of sliding into recession.
A further slowdown of growth in Germany, which roughly makes up one-third of euro zone economy, could give the European Central Bank more leeway to cut interest rates soon, analysts have said.
The survey covers industry, construction as well as wholesalers and retailers.