Sharp Drop in German Business Confidence

Initial hopes that Germany's economy was on the up took a battering on Tuesday when a widely respected financial institution revealed that German business confidence has dropped sharply and unexpectedly. The Munich-based Ifo institute said its business climate index had fallen from 96.4 in January to 95.5 in February, the lowest level since November. Economists had expected a slight rise in the index after strong figures for industrial orders at the end of last year. Ifo head Hans-Werner Sinn told the Financial Times Deutschland that while the survey showed a “slight improvement” in manufacturing export expectations “the recovery of domestic demand has evidently been sluggish.” The Ifo data follows last week's revelation that the German economy was on the brink of recession at the end of 2004. Gross domestic product fell by 0.2 percent in the final quarter, after remaining flat in the third quarter.