German business confidence hit a 19-month low in April after falling for a third straight month, a key gauge showed on Monday in the latest sign that growth in Europe's largest economy is slowing. The Munich-based Ifo institute said its business climate index slipped by more than expected to 93.3 from 94.0 in March, as the mood in manufacturing and wholesaling continued to worsen. Economists polled by Reuters last week had forecast the index, based on a monthly survey of around 7,000 firms, would fall to 93.6. "The picture is not good," said Commerzbank economist Ralph Solveen.
"It shows that the economy is not working. It is clear that after a good first quarter, growth is becoming clearly weaker," he said, noting the export outlook was still good.
Economists believe Germany's economy rebounded strongly in the first quarter after a shock 0.2 percent contraction in the last three months of 2004, but recent data has pointed to a significant slowdown in growth during the second quarter.
Germany's six leading economic research institutes will on Tuesday cut their joint 2005 growth forecast to just 0.7 percent from an earlier estimate of 1.5 percent, a source familiar with the data told Reuters on Monday.
The government is expected to cut its 2005 growth forecast of 1.6 percent to around one percent at the end of the week. Ifo President Hans-Werner Sinn said the mood in the manufacturing and wholesaling sectors had worsened and growth would be weak in the months ahead.
But he said there had been a pick-up in retailing and construction during April - a development highlighted by economists as a sign of strengthening private consumption.
"A recovery in the retail industry and the renewed pickup in construction are certainly positive signs, which also suggest that domestic demand is strengthening slowly," said Citigroup economist Juergen Michels.
Nevertheless, Michels forecast German economic growth would dip to 0.1 percent in the second quarter after projected expansion of 0.6 percent in the first.
A spokeswoman for the Economy Ministry said the figures did not point to a broader downturn.
Bank of America economist Lorenzo Codogno said the data meant the European Central Bank would probably keep interest rates on hold for now at the historic low of two percent.
"The recorded weakness in the Ifo and other euro zone leading indices suggests that the ECB will be in no hurry to tighten monetary conditions, although it is probably not prepared to start a serious debate about a rate cut," he said.
Economists said high oil prices and the persistent strength of the euro against the dollar would probably continue to make it hard for German growth to gather pace this year.
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