German business confidence takes new knock as key index sinks for fifth month
By Geir Moulson Associated Press Writer
BERLIN (AP) – A gloomy business survey Monday showed German companies mired in a fifth month of sliding morale, partly reflecting disappointment at the government’s post-election agenda for sparking the biggest European economy.
The Ifo economic institute’s index of business sentiment, based on a survey of 7,000 executives, fell to 87.7 from 88.2 in September as business leaders’ outlook for the next six months darkened. It was the index’s lowest level since January.
Germany’s economy has been stuck in a period of near-zero growth that’s not enough to dent its jobless rate of just under 10 percent. The economy grew only 0.3 percent in each of the first two quarters this year after shrinking slightly in the last half of last year.
“There’s no sign of a faster upturn,” Ifo economist Gernot Nerb said, adding that Chancellor Gerhard Schroeder’s much-criticized start into a second term appears to have compounded the uncertainty.
“The government’s program and the coalition agreement don’t appear to have caused euphoria among firms, but rather to have dampened it,” he said.
Schroeder was expected to dwell heavily on the economy Tuesday in his first policy speech to parliament since his Sept. 22 re-election. But the new business survey only added to a spate of bad news.
Finance Minister Hans Eichel admitted this month that tax shortfalls caused by the negligible growth meant Germany’s budget deficit this year would likely break the limit laid down in a European Union pact designed to protect the value of the euro.
Since the election, Schroeder’s center-left government has announced steps to raise taxes, cut spending and borrow more to plug the budget gap for next year, drawing accusations from defeated conservatives that it cheated voters.
Schroeder’s party is showing “courage for reforms – even ones that are uncomfortable,” Olaf Scholz, the general secretary of Schroeder’s Social Democrats, said after a meeting of party leaders.
Critics complain that Schroeder is showing no sign of tackling Germany’s tightly regulated labor market and costly welfare state programs head-on, despite pledges to streamline the government’s job placement agency and get more people back to work.
“What Germany needs is more growth, and that will only happen with lower taxes,” said Thomas Goppel, a top aide of defeated conservative challenger Edmund Stoiber.
Germany slipped into a mild recession at the end of last year, and economists have been predicting a recovery after two quarters of anemic growth.
But a series of adverse developments – including the prospect of war in Iraq and steep declines in stock markets in Europe and the United States – have raised doubts about how soon it will come and how strong it will be.
Nerb said there was no indication of a new recession, but he forecast that the economy would continue to improve only slowly.
Last week, Germany’s six leading economic think tanks slashed their growth forecast for this year and next. In a half-yearly report, they said the German economy would grow by just 0.4 percent this year and 1.4 percent next.