* Ifo index surprise fall to lowest since Feb 2010
* German private sector contracts
* ECB bond-buy programme has not calmed real economy
By Annika Breidthardt
BERLIN, Oct 24 German business confidence and
activity plummeted in October, reigniting talk that Europe's
largest economy may be headed for recession and dispelling any
doubts how much damage the euro debt crisis is inflicting.
Germany's Ifo business sentiment surprisingly dropped to
100.0 in October, its sixth consecutive fall and the lowest
reading since February 2010, undershooting the lowest forecasts
in a Reuters poll of 45 economists.
"The clouds over the German economy are darkening," said Ifo
President Hans-Werner Sinn. Ifo economist Klaus Wohlrabe added:
"The uncertainty in the real economy has not decreased."
Private sector activity also shrank for a sixth straight
month as factory order books thinned and demand for exports
weakened, with the manufacturing element of the Purchasing
Managers' Index (PMI) also below all forecasts.
Germany's relative resilience to the euro zone crisis has
been gradually eroded as firms put off investment and demand for
their goods and services shrinks.
Even a European Central Bank plan to buy struggling member
states' debt has not helped the real economy, Ifo said.
The euro hit a one-week low against the dollar and European
shares pared early gains following Ifo's release.
RECESSION ON THE CARDS
Data in recent months has suggested stagnation for the rest
of the year and spurred talk of the risk of recession.
"Today's leading indicators have added clear evidence that
recessionary risks in the German economy are increasing," said
Carsten Brzeski, economist at ING in Brussels.
The German government now expects the economy to grow by 0.8
percent this year and by 1.0 percent next year, after 3 percent
last year and its 4.2 percent spurt in 2010.
An Ifo index on current conditions also fell more than
expected to 107.3 from 110.3. Despite the bleak numbers,
economists took some hope from an Ifo sub-index on expectations,
which remained flat at 93.2.
While this reading also missed forecasts, it points to
developments five months in the future and could be a first sign
of a turning point.
"The fact that the Ifo expectations index did not decline
further offers the only ray of hope," said Holger Schmieding of
Berenberg Bank. "(That does) not dispel the hope that the euro
economy could turn the corner early next year."
Germany's export strength helped it power through the first
two years of the crisis and kept the euro zone as a whole from
falling into recession up until the second half of the year.
But firms are now taking the hit from the crisis and the
Chamber of Industry and Commerce (DIHK) cut its estimate for
2012 growth to 1.0 percent from the 1.3 percent it forecast in
May. DIHK said it did not expect a recession but the economy
would likely grow just 0.7 percent next year.
Its latest survey of some 28,000 member companies reflected
deepening gloom about their outlook as weakening euro zone
demand for German goods dampened industrial exports.
Sports apparel maker Puma said it was looking at
more cost-cutting measures after third-quarter results came in
below expectations, hit by a slowdown in Europe. Puma's third
quarter net earnings fell by 85.1 percent.
Industrial conglomerate Siemens aims to slash
production costs and could cut jobs as business this year proves
tougher than expected.
With the crisis now hitting home - even though consumers are
not yet feeling the pinch - Germans may become more wary about
bailing out other euro zone countries.
Polls show more Germans want Greece to remain in the euro
zone than want it out, but their willingness to extend it more
credit is wearing thin. Germans also fear the ECB's plans to buy
unlimited amounts of bonds could stoke inflation.
ECB President Mario Draghi faces a two-hour grilling from
German lawmakers on his bond-buying plan on Wednesday.