Munich, Nov. 26 (Bloomberg) -- German business confidence fell to a 10-month low in November, adding to pressure on the European Central Bank to pare interest rates next week. The Ifo institute's index of western German business confidence declined for a sixth month, to 87.3, from 87.7 in October. The survey of 7,000 executives also showed expectations for future business in Europe's largest economy dimmed. ``People feel insecure about their jobs, they're not spending money,'' said Hero Brahms, chief financial officer of Linde AG, the country's biggest maker of forklifts. ``I don't see growth in the first half of 2003.''
Germany's economy will this year expand at the slowest pace of all bar one of the 12 euro countries, the European Commission said. Deutsche Telekom AG this month posted the region's biggest quarterly loss. In the past two weeks, eight ECB policy makers have signaled they may lower rates to boost growth. ``Growth is unsatisfactory,'' ECB council member Ernst Welteke said in a speech in Andernach, Germany, yesterday. ``The recovery hasn't been throttled, but it's slow and sluggish.'' The German government yesterday said growth may be ``restrained'' in the final three months of the year, after expanding 0.3 percent in the past three quarters. In France, optimism among manufacturers probably also declined this month, economists said in advance of a government report on Thursday.
Pensions, Taxes
Economists had predicted a decline in Ifo's benchmark index to 87.2. Germany's DAX fell 0.6 percent to 3280.4 at 11:36 a.m. Frankfurt time. The index is down 36 percent this year. Ifo's future expectations index dropped to 95.8 from 97.9., the lowest in 11 months. The government hasn't helped confidence. Chancellor Gerhard Schroeder has raised pensions contributions paid by employers and workers by as much as $136 a month per worker to cover shortfalls in the state retirement fund. Schroeder, who in September won the tightest election since the Second World War, also imposed a new capital gains tax on securities and rented real estate. He also curbed energy tax exemptions for manufacturers and farmers. ``It's a cause for concern that expectations are deteriorating,'' said Gernot Nerb, an economist at Ifo. The euro fell against the yen after the figures. The currency traded at 120.77 yen, compared to 121.35 late yesterday.
Rate Cut Forecast
The ECB left its main lending rate at a 2 1/2-year low of 3.25 percent at its last meeting on Nov. 7. The day before the ECB meeting, the Federal Reserve reduced its target rate to 1.25 percent, the lowest in 41 years. ``A rate cut could help to decrease the pessimism and to increase the optimism'' of businesses and consumers, ECB council member Guy Quaden said Friday. There is ``weak growth in Europe, weak demand and, in particular, weak investment.'' Futures trading suggests the ECB will reduce its benchmark rate as soon as next month. The implied yield on the three-month Euribor futures contract due in December dropped 1 basis point to 2.93 percent. A basis point is 0.01 percentage point. Munich-based Ifo, which gets some of its money from the government, each month asks executives about production, orders, inventories and employment. The index peaked at 107.3 in November 1990. The low was 75.7 in 1982. ``Demand in Germany is still bad,'' said Heiner Guertler, chief executive officer of Wella AG, the world's second-biggest maker of shampoo, said in an interview last week. ``I am cautious about the development of demand next year.'' Slowing inflation in Germany may help the ECB's council to pare borrowing costs at the next rate-setting meeting on Dec. 5. Price gains unexpectedly decelerated to 1.1 percent in November from 1.3 percent in October, a report showed yesterday. ``I expect the ECB to lower interest rates by a quarter point in December,'' said Joerg Kraemer, an economist at Invesco Asset Management in Frankfurt. ``The ECB, like the Fed, is worried about the risks to global growth.'' //www.quote.bloomberg.com