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Last Updated: Monday, 28 April, 2003, 08:47 GMT 09:47 UK
Gloom persists for German firms
Gerhard Schroeder
Mr Schroeder is under pressure

Germany's economy remains sunk deep in gloom, and the end of overt hostilities in Iraq has done little to improve the picture, a key survey has indicated.

Economists had expected the Ifo survey, the monthly overview of confidence among German businesses, to start recovering from March's fall to 88.1 on worries about the impending conflict.

But instead the April Ifo business climate index, based on responses from 7,000 German companies about current and future prospects, sank to 86.6.

"There are still no signs of better days for German business sentiment," Ifo President Hans-Werner Sinn said in a statement.

Germany urgently needs structural reforms, and it's time for politicians to respond seriously to the problems
Christophe Weil

The fall in the main index was the result of sliding sentiment across almost all sectors of German industry, he said. Only wholesalers demonstrated any rise in confidence.

No end in sight

Economists were in no doubt about the gravity of the situation.

"The data were not at all good, and the dramatic fall signals that the German economy is still on a downward trend," said Christophe Weil from Commerzbank.

"Now that the fog of war has cleared, we can clearly see that the German economy is fundamentally weak."

A rapid interest rate cut was needed from the European central bank, he said, although the expected 0.25 percentage point cut "won't help much but it will be something".

German Chancellor Gerhard Schroeder has spent the past few months seeking support for sweeping changes to the way Germany does business, including easing labour laws and trimming welfare.

"Germany urgently needs structural reforms, and it's time for politicians to respond seriously to the problems," Mr Weil said.

"Everyone knows what needs to be done."

Step back

The unwelcome surprise - indicating the Germany's economic troubles are far from over - had an immediate effect on the value of the euro.

After hitting four-year highs against the yen of 132.97 in early-morning trading, the European currency slipped back in the wake of the data to 132.62.

Against the dollar, the euro slipped a similar amount, falling to $1.1035 from an earlier $1.1059.

Stock markets, primed for a rise in the Ifo, lost ground immediately after the announcement, but corporate news kept the Dax index near the high for the day on a 1% gain.

The BBC's Tristana Moore in Berlin
"Schroeder's job is on the line"

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