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EDITIONS
Monday, 23 April, 2001, 10:02 GMT 11:02 UK
Gloom hits German businesses
German production line
Germany's economy is no longer on track to meet growth targets
Business confidence in Germany has sunk to its lowest level since July 1999 amid mounting evidence that Europe's biggest economy is deteriorating.


It doesn't hold out good prospects for the near future

Ulla Kochwasser
IBJ Deutschland
The closely watched Ifo business climate index for west Germany tumbled further than expected in March, falling to 93.9 compared to 94.9 in February.

March's fall comes on top of a steep - and unexpected - fall in February.

Economists had expected March's decline to be only half as steep.

Gernot Nerb, head of surveys at Ifo, called the fall "disturbing".

Upturn?

"The Ifo figures are much weaker than we expected, and the economic slowdown in the US and Asia have undoubtedly played a major part in driving down the business expectations component of the index," said Rainer Guntermann from Dresdner Kleinwort Wasserstein.

But some analysts expect an upturn in the next few months when the effects of the recent US interest rate cuts begin to take effect.

But few analysts thought that the index would significantly increase pressure on the European Central Bank to cut interest rates, saying that the bank was more concerned about inflationary pressures in other parts of the euro-zone such as Ireland and Portugal.

The Ifo index is based on a survey of 7,000 companies and its data often points to trends that might develop later throughout the economy.

Missed growth target

The results of the survey came after Chancellor Gerhard Schroeder admitted that the German economy was likely to fall short of its 2001 growth forecast.

The government had expected the economy to grow by 2.75% during the year, a view which differed sharply from leading economists.

Chancellor Schroeder admitted the downgrade while speaking at the opening of the Hanover Trade Fair, having insisted only last month that the economy was on track to meet its targets.

Despite the adjustment, the Chancellor called the country's economic development "robust".

Germany is Europe's largest economy, accounting for about one third of total euro-zone output.

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 ON THIS STORY
Hans Guenter Redeker of BNP Paribas
"The European Central Bank is in a very difficult situation"
See also:

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