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Recession fears hit Germany
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June 22, 2001: 7:49 a.m. ET
Ifo survey spells gloom for Germany's economic outlook
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LONDON (CNN) - Fears are growing that Germany, Europe's largest economy, is slipping into a recession.
Germany's Ifo survey, a monthly indicator of confidence among the country's business leaders, shows sentiment plunged to a two-year low in May – the fourth drop in a row.
Most economists expected that with the U.S. economy slowing, there would be a drop in German business confidence, but the figures, gleaned from 7,000 German firms, were worse than most expected.
James Stewart, of Weavering Capital, told CNN: "The problem with an economic slowdown in Germany is that it is the single most important trading partner for almost all the countries in the euro zone, and is the most important for the UK.
"When you couple that with the slowdowns in the U.S. and Japan, you have a very big problem developing.
"We might now see a technical recession (two quarters of negative growth), as we could well see negative growth in the third quarter as well as the second."
The survey by the Munich-based Ifo economic institute on Friday showed the headline west German business climate index slipping to 90.9 from 92.5 in April.
The euro fell more than a quarter of a cent after the data was released, which followed other recent poor forecasts for German growth.
Germany's DIW research institute warned of recession on Wednesday, and other top think-tanks have also weighed in with gloomy predictions about the nation's growth prospects.
Germany is particularly vulnerable to a world-wide slowdown, as some 16 percent of its exports go to the U.S.
Germany has a large manufacturing sector that accounts for around a quarter of the country's gross domestic product – and manufacturers are hurting.
Infineon Technologies (FIFX), Europe's second-biggest chipmaker, and BASF (FBAS), Europe's biggest chemicals company, issued profit warnings this week.
German consumers worried about their jobs are not spending money. Unemployment is rising and recent tax cuts have not fuelled a spending boom.
Earlier this week German Economics Minister Werner Mueller said there was a risk that economic growth could grind to a halt in the second quarter, threatening the government's official 2001 GDP growth forecast of two percent.
Germany's economic growth is being revised downwards to as low as 1.1 percent, with no significant recovery in sight until the middle of next year.
Germany's blue-chip Xetra Dax stock market index rose slightly shortly after the Ifo figures were released, as traders hoped the data might trigger a cut in European interest rates.
--CNN Business Correspondent Tom Bogdanowicz contributed to this article. 
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