By Christian Baumgaertel
Frankfurt, June 22 (Bloomberg) -- German executives were more pessimistic in May than at any time in the last two years as a slowing economy curbs sales, a report today is likely to show.
An Ifo research institute index, based on a survey of some 6,000 executives, probably declined for the 11th time in 12 months. Seventeen economists surveyed by Bloomberg News predicted on average an index reading of 91.9, down from 92.5 in April.
BASF AG, Europe's biggest chemicals maker, Infineon Technologies AG, the continent's second-largest chipmaker, were among German companies this week to report that earnings in coming months will fall short of earlier estimates.
German unemployment rose for a fifth straight month in May, while factory orders and production declined in April. Germany's economy, Europe's biggest, is likely to grow just 1.3 percent in 2001, down from 3 percent last year, said the Kiel Institute for World Economics, a publicly funded research organization.
The decline in Ifo's index, one of the most widely watched gauges of Europe's economy, may kindle ``fear of recession,'' said Klaus Schruefer, an economist at SEB AG bank in Frankfurt.
Germany is the biggest trading partner of most European countries, and its economy accounts for a third of the total among the dozen countries sharing the euro, so the slowdown is likely to drag down the rest of Europe.
``If Germany slides into a crisis, that would be fatal for all of Europe,'' said Klaus Zimmermann, president of the German Institute for Economic Research, or DIW. ``Recession can't be ruled out'' in Germany, he said.
Stocks, Euro Slide
The weakening of the economy and corporate earnings have pushed stock prices lower. The Dow Jones Stoxx 50 Index, a benchmark for the euro region, has declined 13 percent this year. The euro has dropped 9 percent against the dollar.
The European Central Bank has proved reluctant to lower borrowing costs for the 12 countries that share the euro -- an area that includes 300 million people from Athens to Dublin.
The central bank held its benchmark rate at 4.5 percent Thursday because of concern about inflation, which reached an eight-year high of 3.4 percent in May. The ECB has cut interest rates just once this year, by a quarter point on May 10.
The U.S. Federal Reserve has pared its benchmark lending rate by a total of 2.5 percentage points this year, to 4 percent, while the Bank of England has lowered its key rate three times, to now 5.25 percent. The Bank of Japan reduced the cost of borrowing money close to zero in March.
Growth in the U.S., the destination for some 14 percent of European exports, eased to an annual rate of 1.4 percent between in the six months through March, the weakest pace since 1991. That's affecting German companies such as Heidelberger Zement AG, Europe's third-largest cement producer, which said Tuesday that sales were being curbed by the U.S. slowdown.