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German Business Confidence Drops

June 22, 2001

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FRANKFURT, Germany (AP) _ Business confidence in Germany dropped to a two-year low, according to a report released Friday, triggering a slide in Europe’s common currency and fueling fears that the region’s economic slowdown is worsening.

The closely watched Ifo index, which measures the optimism of executives in Europe’s largest economy, fell to 90.9 in May, down from 92.5 in April. Analysts had expected a smaller decline.

Ebbing confidence in Germany, fueled by slowing industrial orders and output, bodes ill for European economic growth because Germany accounts for about a third of the economic output of the 12 European Union countries sharing the euro.

Gernot Nerb of Germany’s esteemed Ifo economics institute said the new figures indicate there is ``no turning point immediately ahead″ for the country’s large manufacturing sector.

The euro tumbled on the news, losing nearly half a cent against the dollar to hover just above 85 cents.

Economists had expected the index to fall after a spate of profit warnings deepened business leaders’ gloom last month. But the decline was worse than expected.

The dimming outlook for Germany increases the pressure on the European Central Bank to ease interest rates again, though economists expect the bank to wait until it is sure that inflation has begun to fall.

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