German corporate sentiment unexpectedly worsened this month to its lowest level since reunification in 1990, dragged down by a bleak assessment of the state of the global economy, a survey showed on Tuesday. Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, fell to 82.6 in February from 83.0 in January. A Reuters poll of 49 economists had pointed to a reading of 83.0. A measure of current conditions fell, the survey showed, but an expectations gauge rose for a second straight month. “The expectations of firms remain basically skeptical, nevertheless. On the whole the survey results don't signal a cyclical turning point,” Ifo said in a statement. Corporate Germany, which profited from a boom in foreign demand in recent years that made it the world's biggest exporter of goods, is now suffering from the global downturn. Manufacturers have been especially hard hit, causing big problems for the country's automobile industry, and sentiment in the manufacturing sector declined further in February, Ifo said. Assembly lines at some Volkswagen plants in Germany fell silent on Monday as Europe's biggest carmaker switched to a short working week for the first time in 26 years. Scaled-back production at six VW brand plants in western Germany and one plant in eastern Germany affected 61,000 workers as VW aimed to keep inventories of unsold cars from piling up. Weak foreign demand battered the German economy late last year, with gross domestic product shrinking 2.1 percent in the final quarter, the biggest quarterly drop since reunification. “The first quarter of 2009 will be marked by clearly negative growth,” said Helaba economist Ralf Umlauf. “The rise in Ifo expectations nevertheless leaves room for some hope for a stabilization of the economy in the second half of the year.” The government expects the economy to contract by around 2.25 percent this year, though some top economists have forecast a recession twice as severe. Since World War Two, the economy has never contracted by more than one percent in a year. However, German analyst and investor sentiment rose sharply in February, in a sign that stimulus measures and interest rate cuts could help the economy on the road to recovery later this year.
