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German confidence falls
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November 21, 2001: 5:33 a.m. ET
Ifo business confidence hits eight-year low, ECB should cut interest rate
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LONDON (CNN) - German business confidence fell to an eight-year low, amid signs Europe's biggest economy was still reeling from the September 11 attacks.
A survey of about 7,000 German companies showed business confidence in October fell to 84.7 from 85 in September, the Ifo institute said on Wednesday. Economists had expected the index to stabilise after plunging in September after the confidence-shattering terror attacks on the U.S.
Ifo economist Gernot Nerb told Reuters the survey showed that the economic trough had not been reached and the European Central Bank should cut interest rates by another half point.
"We still think a trough should be reached in the first quarter but to be sure we get a recovery, we should see expectations improving in January or February at the latest," Nerb said.
"There is room for manoeuvre on interest rates. In the first half-year, we recommend a further 50 basis points," he said.
Although Ifo received the bulk of the survey replies between November 10 and November 15, after the ECB's half-point rate cut on November 8, the action had little impact on the survey results.
"Normally, it doesn't influence immediately the assessment. For industrial companies, the impact normally is rather delayed. They don't look so much at the interest rate," Nerb said.
Bundesbank President Ernst Welteke, who is a member of the ECB's rate setting council, over the weekend said he expected the world economy to begin to recover in early 2002 and that the ECB's monetary policy was not hindering growth.
The German central banker said the attacks on the U.S. on September 11 had delayed the recovery in the world economy until early 2002. Welteke said economic stimulus measures for Germany, such as bringing forward planned tax reductions, would be counter-productive.
German third-quarter growth is likely to be zero or slightly positive, Welteke said.
The German economy remained stagnant in the third quarter, the German Bundesbank said on Monday. Growth in Germany has been sluggish for a year as the world economy cooled but the slowdown worsened after the attacks, which heightened uncertainty among businesses and households and delayed purchasing decisions.
European Central Bank Vice President Christian Noyer said on Monday the bank does not see the need for further interest rate cuts. The ECB's next rates decision is due on Thursday.
The ECB, which sets interest rates for the euro zone, has not been as active in cutting rates as many politicians and market watchers would have liked it to be, but the central bank has a mandate to control inflation below 2 percent.
The West German business expectations measure fell to 89.6 from 90.6, while the business conditions component of the index rose to 79.9 points from 79.6 in September. The broad climate index for East Germany held steady at 96.6.
In the monthly survey companies express their view on current business conditions and the outlook for the next six months.
--Reuters contributed to this report 
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