Frankfurt, Nov. 18 (Bloomberg) -- Germany's economy, Europe's largest, barely grew for a third quarter and the central bank said there's little sign of improvement. Gross domestic product expanded 0.3 percent in the third quarter from the previous three-month period, the same rate as in the preceding two quarters, the Bundesbank said. ``What's missing the most is the hope for an improvement, which has always been a prerequisite for stronger investments and employment,'' the bank said in its November report.
Germany accounts for about a third of the economy of the dozen nations using the euro. Deutsche Telekom AG, Europe's largest phone company, last week posted the continent's biggest quarterly loss. Stagnant growth is eroding government revenue, spurring Chancellor Gerhard Schroeder to increase taxes and cut spending. Business confidence dropped for a fifth straight month and unemployment rose to the highest in almost four years in October. The economy will grow 0.2 percent this year and one percent next, a panel of advisers to the government known as the ``Five Wise Men'' said in their annual assessment of the economy. ``We're now assuming that there won't be a revival in the economy before the middle of next year,'' said Ralph Solveen, an economist Commerzbank AG in Frankfurt. ``That's why we've lowered our growth forecast for next year to 1 percent from 1.25 percent.''
German growth in the third quarter was led mainly by exports of industrial goods and improved consumer spending, the central bank said. At the same time, waning pessimism among shoppers means that consumer spending will be ``moderate,'' the bank added.
`Reluctant to Spend'
``Consumers are still reluctant to spend,'' said Wolfgang Urban, chief executive officer of KarstadtQuelle AG. Germany's biggest department-store operator said today 2002 earnings will drop by more than a third, hurt by slumping demand. Stagnating growth is putting pressure on the European Central Bank to lower interest rates as early as Dec. 5, when its 18-member rate-setting council next meets. The European Commission last week pared its growth forecast for the region as demand slows, stock markets fall and executives are becoming more pessimistic. ``The weakening outlook for growth this year and next leads us to expect that inflation rates will come down, and the ECB council will have to take that into consideration,'' ECB council member Ernst Welteke told reporters in Marburg, Germany, on Wednesday. Italy's economy, Europe's fourth-biggest, expanded 0.3 percent from the second quarter, when it expanded 0.2 percent, the government said Thursday. Growth in the Netherlands was 0.1 percent, a separate report showed.
Taxes, Jobs, Growth
German economic growth may grind to a halt at the end of the year and a quick recovery next year is not in sight because of ``higher taxes and costs and rising unemployment,'' the German banking association BDB said in a report published today. The government plans to boost revenue by raising 66.7 billion euros ($67.3 billion) in four years by increasing social insurance contributions and eliminating tax breaks. ``The deterioration in the labor market intensified in the third quarter'' in Germany, France, Italy and Spain, said Silvia Pepino, an economist at J.P. Morgan Chase & Co. in London. The ECB ``is moving closer to a policy easing.'' ECB Council member Klaus Liebscher said the economy probably won't reach ``potential'' growth of 2 to 2.5 percent before the second half of 2003.
Inflation
An index of European manufacturing prices fell in October from September while prices charged in the dozen nations' service industries continued to contract last month. Consumer price inflation in the region reached 2.3 percent in October, a report today showed. The bank aims to keep inflation below 2 percent. ``The medium-term outlook for prices has improved,'' ECB Chief Economist Otmar Issing said in an interview published on Tuesday. ``It's important to note that inflation expectations have declined'' among consumers. Investors expect the ECB to trim its main rate from the current 3.25 percent before the end of the year, making credit cheaper for consumers and companies in the 12 nations from Portugal to Finland. The implied yield on the three-month Euribor contract for December is at 2.95 percent, compared with a yield of the current three-month lending rate of 3.10 percent. From a year ago and adjusted for work day effects, Germany's GDP grew about half a percent in the third quarter, the Bundesbank said. The Federal Statistics Office will publish official figures on Thursday morning.//www.quote.bloomberg.com