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German confidence slumps again
FRANKFURT, Germany -- Confidence among German business leaders deteriorated for the six straight month in November as the outlook for Europe's largest economy dimmed. The Ifo Institute's monthly index -- based on a survey of 7,000 west German companies -- fell to 87.3 from 87.7 in October, continuing a slide that began in June. However, this month's reading was above the 86.8 level that most analysts had expected. The November reading shows business confidence is still wavering due to volatile markets, high unemployment, growing government deficits and a new round of tax increases. The German economy has barely grown this year after falling into recession in mid-2001. 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. Ifo President Hans-Werner Sinn said the economy appeared to be stabilising but weakening business expectations remained a cause for concern. Many economists agree the economy is showing some signs of improvement, but they do not expect growth to pick up until 2003. "The index remains at a low level, but the downtrend has slowed," Bernd Weidensteiner, an economist at DZ Bank, told Reuters. "However, we would need to see an increase over a few months for there to be any real improvement in the outlook. The fourth quarter will be difficult for the German economy, a recovery won't be possible until early 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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