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German confidence slides again
FRANKFURT, Germany (CNN) -- Confidence among German business leaders deteriorated for the seventh straight month in December but many believe the worst may be over for the country's struggling economy. The closely watched Ifo business climate index -- based on a survey of about 7,000 west German companies -- slipped to 87.1 this month from 87.3 in November. Analysts polled by Reuters had expected the index to fall to 87 in December. The Ifo economic institute, which compiles the monthly index, said on Wednesday that companies remain concerned about the current business climate in Germany, which is experiencing a sluggish recovery amid rising unemployment, higher taxes and nationwide strikes. But it said many businesses are optimistic that Europe's largest economy will avoid a recession such as the one that gripped Germany in the second half of 2001. "The decline [in the index] was the result of a clear worsening of the current business situation, whereas the expectations for the next six months turned upwards for the first time since May,'' Ifo President Hans-Werner Sinn said in a statement. The index of current business confidence fell to 76.8 in December from 79 in previous month, while the reading for the future rose to 97.9 from 95.8 -- with all sectors except the wholesale trade and retailing offering a positive outlook. "Business sentiment has reached a bottom now. I would describe it as a glimmer of hope but not more than that," Robert Prior-Wandesforde, a European economist at HSBC, told Reuters. "There were a few months of panic related to the Iraq situation but now globally things are suggesting we are not heading into a double dip [recession] scenario... It will be a long period of weak manufacturing production, and hence weak GDP, and Germany will continue to be an under-performer and flirt with recession." The German economy is expected to grow by 1.5 percent next year and 2.5 percent in 2004, according to the Organization for Economic Cooperation and Development. But the OECD said those projections would be reduced if unemployment continued to rise. The jobless rate jumped to 9.7 percent in November -- a four-year high -- as the number of unemployed workers surpassed the politically sensitive 4 million mark. Chancellor Gerhard Schroeder was first elected on a promise to cut unemployment to at least 3.5 million. He dropped that pledge in his successful campaign for re-election September as the Germany's economic growth slowed. He has since introduced a series of tax increases to help reduce the government's budget deficit, which the OECD says will reach 3.7 percent of GDP at the end of this year -- breaching the 3 percent ceiling imposed by the European Commission. Schroeder is also trying to keep a lid on inflation -- which is running at 1.6 percent -- as unions push their demand for wage increases of 3 percent or more. A series of rotating strikes have crippled most industries throughout German. The latest stoppages have hit airports and caused hundreds of flight cancellations. (Full story) The government says there is no public money to cover higher wage demands.
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