Gloomy Assessment

Based on a survey of 7,000 German executives, the index, compiled by the Munich-based Ifo Economic Research Institute, edged down to 82.6 points from 83 points in January.

"The worsening of the business situation that has been going on for months has continued in February," Ifo president Hans-Werner Sinn said in a statement.

Ifo said Tuesday that businesses' expectations for the next six months improved slightly but their assessment of the current situation worsened.

Firms remained "basically sceptical," and "on the whole the survey results do not signal a cyclical turning point," Sinn said.

Economist warns of severe economic contraction

His comments come just a day after Norbert Walter, the chief economist at Germany's biggest bank, Deutsche Bank, warned the economy could shrink by more than five percent this year.

That assessment is much worse than the German government's own forecast that the economy will contract by between two and two-and-a-half percent this year.

German Chancellor Angela Merkel's government this month passed the second of two economic stimulus packages designed to lift the economy out its slump by pumping public money into infrastructure projects and reducing taxes.

But the government remains under pressure to prop up tottering banks and inject aid into faltering companies in a bid to stave off large-scale layoffs.

Data released earlier this month showed that the German economy shrank by 2.1 percent in the final quarter of 2008, the biggest slump in 20 years.

Germany officially entered recession in the third quarter of 2008 after two successive three-month periods of negative growth.

Author: Julie Gregson (dpa/Reuters/afp)

Editor: Sonia Phalnikar