German business sentiment in April was worse than the most pessimistic of forecasts, falling for the second consecutive month as Europe’s largest economy was undermined by both its eurozone and Chinese export markets.

Munich-based Ifo think tank said yesterday its business climate index, based on a survey of some 7,000 firms, fell to 104.4 in April from 106.7 in March.

It came a day after a preliminary purchasing managers’ survey showed Germany’s private sector contracted in April, bolstering the case for the European Central Bank to cut interest rates at its meeting next week.

The Ifo report pushed the euro down to its lowest in nearly three weeks against the dollar while Bunds edged up briefly.

“The sharp dip in Germany’s Ifo index marks another nail in the coffin for stronger recovery this year,” said David Brown at New View Economics.

The German economy long fought off the eurozone crisis that sent much of the rest of the bloc into recession but contracted in late 2012. Data now point to it struggling to leave that gloom behind, especially because of weakness in the Chinese economy which had proved a strong alternative market. The economy has not yet featured prominently in Germany’s election campaign but if it worsens significantly it could become a headache for Chancellor Angela Merkel as she seeks a third term in office in September.

Momentum is growing at the ECB for a cut. The bank’s own lending data added to the pressure, showing demand for corporate and household loans in the euro zone plummeted in the first three months. Lower interest rates could help German exports and therefore the wider eurozone by weakening the euro, which has already fallen around 1.5 per cent against the dollar since the start of the year.