(Adds fresh economist comment, background)
By Paul Carrel
BERLIN, Dec 18 (Reuters) - German corporate sentiment deteriorated for the seventh month running in December, with exporters in particular suffering as the economy slides into what could be Germany's deepest post-war recession.
The Munich-based Ifo economic think tank said on Thursday
its business climate index, based on a monthly poll of around
7,000 firms, fell to 82.6 in December from 85.8 in November. A
Reuters poll had pointed to a reading of 84.0
Such a low reading has not been seen since German reunification in 1990. Ifo said it had to go back to 1982 to find such a weak index level in the former West Germany.
"Far from weathering the storm, the German economy is in the midst of it," said Jennifer McKeown at Capital Economics.
The euro briefly trimmed gains after the weaker Ifo reading bolstered the view that the euro zone economy is weakening and may require more cuts in interest rates.
Ifo said the downturn was above all affecting manufacturers of exports and capital goods. Germany was the world's biggest exporter of goods last year, profiting from booming foreign markets, but it is now suffering as they go into reverse.
A deputy economy minister said on Tuesday the German economy may shrink by more than 3 percent in 2009, and leading analysts have predicted a contraction of up to 4 percent -- which would be more than four times worse than the previous post-war nadir.
Highlighting the economic weakness, German auto supplier
Continental AG
The Ifo current conditions index fell to 88.8 from a revised 94.9 in November. The expectations index eased to 76.8 from 77.6.
"The dominant feature of the December decline is the worsening of the firms' current business situation. With regard to the six-month business outlook, the scepticism of the survey participants remains nearly unchanged," Ifo said in a statement.
PRESSURE MOUNTING
The deteriorating economic situation in Europe's largest economy is putting pressure on policymakers to do more to lift the economy out of the doldrums. Germany slipped into recession over the summer, contracting in the second and third quarters.
"Pressure on the ECB is increasing to cut interest rates further. There will be more cuts in coming months," said Thorsten Polleit at Barclays Capital. "Pressure is mounting on the German government to agree an economic package."
Ralf Umlauf at investment house Helaba agreed: "Pressure on the ECB to make further clear cuts in interest rates to fight against the crisis ought to increase because of this," he said.
The European Central Bank lowered interest rates by 75 basis points -- its biggest ever cut -- earlier this month. The cut -- the third in less than two months -- took the main interest rate to a 2-1/2 year low of 2.50 percent.
ECB Governing Council member and Bundesbank chief Axel Weber was reported as saying on Wednesday that it would not be a major problem if euro zone rates briefly dropped below 2 percent.
Chancellor Angela Merkel said on Tuesday the government knows its existing economic stimulus plan may be insufficient but will not take any further steps until U.S. President-elect Barack Obama takes office, due on Jan. 20.
A package of measures the German government says is worth about 31 billion euros ($44.57 billion) is already due to come into effect in January, but Merkel has faced pressure from European Union peers like France to do more.
Bank of America economist Holger Schmieding said the government should have faced up to the crisis sooner.
"They should at least have had some plans ready in case it got really bad. Now it is really bad and they don't even seem to have thought about what would be a sensible stimulus," he said. (Additional reporting by Noah Barkin, Christian Kraemer, Madeline Chambers and Anna Brooke; Editing by Toby Chopra)