Germany faces contraction

Germany faces contraction. (GETTY IMAGES)

German business sentiment fell for the first time in almost a year in February, a closely watched survey showed yesterday, suggesting Europe's largest economy may slide back into contraction in the first quarter.

The Munich-based Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, fell to 95.2 from 95.8 in January. A Reuters poll of 45 economists had forecast the index would show a reading of 96.1.

Ifo economist Klaus Abberger said a downturn in retail sales, possibly due to a harsh winter, hit business morale. The weather also weighed on construction activity, and may cause the economy to contract in the first quarter, he said.

The euro pared some gains against the dollar after the release of the data.

Analysts put the move down chiefly to an unusually severe European winter and said the economy may still make up the ground later this year.

"At a first glance it is disappointing that the index overall has fallen," said UniCredit economist Alexander Koch. An index on current conditions fell to 89.8 from 91.2 in January.

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