German business confidence took a tumble this month, according to data Wednesday, putting back on the table speculation of a possible interest rate cut by the European Central Bank, analysts said.
Sculpture of a giant Euro sign pictured in front of the European Central Bank (ECB) headquarters in Frankfurt am Main, western Germany on March 7, 2013. German business confidence took a tumble this month, according to data Wednesday, putting back on the table speculation of a possible interest rate cut by the European Central Bank, analysts said.
The Ifo economic institute's closely watched business climate index fell to 104.4 points in April from 106.7 points in March.
That was a bigger drop than the very slight decrease to 106.2 points that most analysts had been expecting.
"Although the majority of companies assessed their current business situation as good, they were far more cautious than last month," said Ifo economist Kai Carstensen.
"Their expectations regarding future business developments were also lower. The German economy is taking a breather," Carstensen said.
Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.
The sub-index measuring current business slipped to 107.2 points in April -- its lowest level in four months -- from 109.9 points in March. And the outlook sub-index fell by two whole points to 101.6 points.
Analysts said the drop wiped out the sharp increase seen in February, when the index reached a 10-month high.
"All in all, it is a quite gloomy report that confirms risks for the German economy in the first half of 2013," said Newedge Strategy analyst Annalisa Piazza.
"The decline clearly opens the door for a vivid discussion about a rate cut as early as in May as even the eurozone's biggest economy is now losing momentum," Piazza added.
In response to the debt crisis, the ECB slashed its key interest rate to a historic low of 0.75 percent last July and has held it there since.
But financial markets have speculated about a further cut in order to pull the eurozone economy out of recession.
Carsten Brzeski at ING DiBa said the Ifo data would at least put such a move back on the agenda.
"All in all, this week's confidence indicators send a warning signal that 2013 is not 2009. Any rebound of the German economy after the contraction will be much bumpier and weaker than four years ago," he said.
And worsening prospects for the German economy "could at least increase the silent support for more ECB action," Brzeski suggested.
A rate cut may not kick-start economies but would weaken the euro exchange rate, which would offer some welcome relief for German exporters, the expert said.
Ben May at Capital Economics said the Ifo data "will add to concerns that the German recovery is starting to falter."
"In all, then, while Germany still looks in better shape than the eurozone as a whole, we see the economy stagnating over the year as a whole," May said.
Christian Schulz at Berenberg Bank also believed focus would now turn to the ECB.
"Resistance to a rate cut will be crumbling. Even Bundesbank President (Jens) Weidmann had sounded marginally more dovish recently," he said.
A rate cut would not change much in the periphery, and the ECB would "more likely than not wait for another month as it publishes new economic forecasts in June, before deciding whether to cut rates or not," he said.
"But we do expect ECB President Mario Draghi to send more dovish signals" after the upcoming policy meeting at the beginning of May, he concluded.
Bundesbank board member Andreas Dombret, speaking separately at a conference in Berlin, said the German central bank sees no cause to revise its current growth forecasts, despite recent disappointing data.
"The German economy is growing, maybe more slowly than everybody hoped for, but (it) is growing," he said.
The unseasonably cold winter weather had hit sectors such as construction, the central banker said.
"But our forecast hasn't changed, which sees slow but positive growth this year and above the trend next year," Dombret said.
In December, the Bundesbank had said it expects German gross domestic product to expand by 0.4 percent this year after growth of 0.7 percent in 2012.
But growth would pick up to 1.9 percent in 2014, according to the Bundesbank forecasts.
The economy ministry is scheduled to publish its latest updated growth forecasts on Thursday.