German business confidence came in lower than expected in May, adding to bad news from the euro zone's paymaster and knocking both European stocks and the euro lower on Thursday.
The Ifo business climate index — which starts from a base of 100 — was at 106.9 in May, down from 109.9 in April and compared with 114.2 in May of last year. It was forecast by economists surveyed by Reuters to have fallen to 109.4.
The euro hit a new 22-month low after the report was released, while European stocks, already paring gains on a bad manufacturing number, fell further.
Markit's manufacturing Purchasing Managers Index (PMI), released earlier on Thursday, showed that manufacturing contracted at its fastest pace in three years in Germany, sliding to 45.0 this month from April's 46.2.
Analysts said the big drop in the Ifo showed that previously resilient German businesses have finally lost their optimism.
"Until recently, it seemed as if the German economy had turned into an island of happiness. The Ifo had defied all euro zone crisis woes for more than half a year and growth returned strongly in the first quarter," ING economist Carsten Brzeski wrote in a market note.Page 1 of 2 | Next Page