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Germany braces for more gloom
FRANKFURT, Germany (CNN) -- Investors are bracing for more gloomy news out of Germany this week, as economic and corporate conditions continue to weaken. The Ifo index -- a key barometer of corporate confidence -- is expected to show on Tuesday that Europe's biggest economy, which has barely grown this year after falling into recession in mid-2001, could falter even further in coming months. The Ifo Institute's monthly survey of 7,000 west German companies fell for a fifth straight month in October. The index slipped to 87.7 in October from 88.2 in September -- continuing a slide that began in June. The November Ifo reading is expected to show that confidence among business leaders is still wavering due to volatile markets, high unemployment, growing government deficits and a new round of tax increases. "The sentiment might be more depressed than the actual economic situation, but signs are growing in number and vehemence that there might be another economic weakening in the months to follow,'' strategists at Sal Oppenheim said in a note to investors. German gross domestic product grew by just 0.3 percent in the third quarter from the previous three-month period. The economy is expected to grow by 1.5 percent next year. The economy has been struggling to regain growth as the global slowdown cuts into exports, reduces prices for products and hurts corporate profits. At the same time, as stock markets plunge, many companies have had to accelerate spending cuts and layoffs -- pushing Germany's employment rate to almost 10 percent. The government has also revised its 2003 budget deficit to nearly 19 billion euros, even as it lowers spending. Germany has already run afoul of the European Union for exceeding the deficit ceiling for euro zone members of 3 percent of GDP. Economists said tax increases -- to be introduced by Chancellor Gerhard Schroeder's coalition government next year -- are one of the main reasons companies and consumers are tightening their belts. Changes to the tax structure include higher pension contributions and wider net for capital gains payments. "In the medium term, I am not optimistic. In this political climate of tax hikes and the budget deficit problem I also do not believe that the Ifo index will help markets,'' Christian Schmidt, a trader at Helaba, told Reuters. Investors will get another glimpse at the health of corporate Germany on Thursday when Munich Re, the world's biggest re-insurer, posts its third-quarter results. Munich Re is expected to post a pre-tax loss of 965 million euros ($967.3 million), Reuters reported. The group had a loss of just over 1 billion euros in the second quarter and a 2 billion loss in the third quarter of last year. It will be the latest in a string disappointing numbers from the banking and insurance sector, including a 2.5 billion euro loss from Europe's biggest insurer Allianz. The sector has been hit by increasing losses due to bad loans, higher-than-expected insurance claims due to the September 11 terror attacks in the U.S. and flood damage in German. In addition, banks and insurers have seen the value of their investment portfolios collapse as markets tumbled.
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