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German Business Sentiment Falls, But Outlook Positive

German business sentiment for February dipped further than analysts’ expectations, with the retail sector showing the bulk of the weakness, according to the Ifo economic research institute’s data released Friday.

But investors should not be too concerned with the minor drop, according to Gregor Eder, head of industrial countries research at Allianz Dresdner.

“We are still at a very high level (and) the picture for this year is still intact,” Eder said to CNBC.com. He expects Germany’s gross domestic product to grow at 1.8% in real terms for the year, which is up on recent previous estimate of 1.4%. The upward revision is mainly to optimism about the German labor market, Eder said.

The Ifo survey’s figure for February was 107.0, compared to 107.5, which was the mid-range forecast of economists polled by Reuters. The figure is down more than 1% from 107.9 in January.

The weakness in the German retail sector could be short lived ,according to Gernot Nerb, head of business-survey at Ifo Institute, who says that it will pick up in the later part of the year.

The price of bunds rose after the release of the data, up 0.2% from Thursday's close, pushing yields down, as the probability of further interests rate hikes declined.

“I think the next hike in March is already more or less decided … above this limit I think they should be extremely careful to see how things develop, because looking at the inflation side we don’t see so much risk,” Nerb said.