(Adds economist comment, market reaction, background)
By Noah Barkin
BERLIN, Nov 24 (Reuters) - German corporate sentiment fell sharply in November to its lowest level since February 1993 as manufacturers and retailers grew more gloomy about the economic outlook, a leading survey showed on Monday.
The Ifo economic research institute said its business climate index, based on a monthly poll of around 7,000 firms, declined to 85.8 in November from 90.2 in October.
Economists surveyed by Reuters had expected a more modest fall in the index to 88.7 ECONDE. The euro briefly fell against the dollar after the weaker-than-expected reading, but Bund futures eased on relief that the Ifo was not worse.
“By now even the most optimistic companies will have realised just how deep this crisis really is,” said Gunnar Meyke, an economist at DekaBank.
Ralf Umlauf at Helaba said the data would boost expectations of a significant cut in euro zone interest rates by the European Central Bank.
Germany fell into a recession in the third quarter of the year but economists fear the worst is yet to come as businesses rein in investments and nervous consumers curb their spending in anticipation of a deep downturn and job cuts.
The German government has unveiled a 500 billion euro rescue package for the domestic financial sector, but fewer banks than hoped have made use of it and many remain reluctant to lend.
Chancellor Angela Merkel’s coalition has come under criticism at home and abroad for not complementing the banks’ rescue with a bold economic stimulus plan.
A 15-point fiscal package agreed by the cabinet in early November is worth an estimated 0.5 percent of gross domestic product (GDP) over the next two years, far less than what some economists say Germany needs and can afford.
“The situation in the German economy is getting more precarious,” Ifo economist Klaus Abberger told Reuters in an interview.
Separate Ifo gauges of current conditions and expectations tumbled to 94.8 and 77.6, respectively. The drop in expectations was the sixth straight fall. The institute said both the manufacturing and retail sectors had grown much more gloomy about their outlook, confirming data last week which pointed to a sharp deterioration in the economy.
A survey of purchasing managers on Friday by the Markit research group showed the manufacturing sector in its worst state since the poll began in April 1996. Business expectations in the services sector also fell to a record low.
Slowing demand around the world is expected to hit German exports, which have driven economic growth in past years. Sales of cars and car parts, which fell sharply in October, accounted for a fifth of German exports last year.
“We must get ready for hard times not only at Opel but in the car industry as a whole,” Carl-Peter Forster, president of General Motors Europe, told the Welt am Sonntag newspaper this weekend.
(Additional reporting by Dave Graham, Kerstin Gehmlich, Rene Wagner, Josie Cox)
Writing by Noah Barkin and Paul Carrel; editing by David Stamp