Munich, Dec. 16 (Bloomberg) -- German executives probably grew more pessimistic for a seventh month in December, analysts said, adding to signs Europe's largest economy may be stalling. The Ifo economic institute, which polls 7,000 companies each month, will say Wednesday that its index of western German business confidence fell to 87.0 in December from 87.3 in November, according to the median forecast of 25 economists surveyed by Bloomberg News. The economy ``will stagnate at best'' this quarter and next, said Uwe Angenendt, chief economist at ING BHF-Bank AG in Frankfurt. ``We don't expect a recovery before the second quarter.'' Germany, which accounts for about a third of the $7 trillion economy of the 12 nations using the euro, has been struggling to grow since emerging from last year's recession. Deutsche Telekom AG, the continent's biggest phone company, last month posted the largest quarterly loss in European history.
Germany's HWWA economic institute and the Kiel Institute for World Economics last week pared their growth forecasts, suggesting a recovery isn't imminent. Plans by Chancellor Gerhard Schroeder to offset falling revenue with spending cuts and higher taxes aren't likely to boost investment and hiring. Ifo will publish its indicator on Wednesday. Analysts said a sub-index of future expectations probably declined, while executives' assessment of current business improved.
Tax Increases
Germany's machinery makers will reduce investment and eliminate jobs next year as the planned tax increases push up costs, the VDMA industry association said last week. VDMA's 3,000 members include Siemens AG and ABB AG. The planned tax increases will cost ``companies and households 20 billion euros next year,'' ING-BHF Bank's Angenendt said. The ECB pared the minimum rate at which commercial banks can bid for loans by half a point to a three-year low of 2.75 percent earlier this month. It cut its growth forecast for next year to as little as 1.1 percent from a June estimate of at least 2.1 percent. Policy makers from Bank of France Governor Jean-Claude Trichet to Finland's Matti Vanhala said boosting confidence was one of the aims of the reduction. The bank signaled rates are unlikely to change soon, with ECB President Wim Duisenberg saying interest rates are ``very low'' by historical standards. Signs of a recovery in the U.S. may help Germany, the No. 2 exporter globally. The world's largest economy, destination of about a fifth of Europe's exports, will probably strengthen in 2003, a survey of managers showed last week. The U.S. Federal Reserve pared rates to a 41-year low of 1.25 percent last month. Beiersdorf AG Chief Executive Officer Rolf Kunisch said sales at the maker of Nivea creams will rise in 2003. Chipmaker Infineon Technologies AG expects fiscal first-half sales to increase.
Bank Credit
Still, companies and consumers may not enjoy the benefit of cheaper credit. Germany's commercial banks, many of which had their credit ratings cut, ``can't afford'' to pass on lower rates unless growth picks up and the ECB pares credit costs again, Rolf Breuer, chairman of the BDB banking association, said Thursday. There are ``significant'' risks to the ECB's growth outlook, Ireland's John Hurley said in an interview last week. ECB Chief Economist Otmar Issing and Bundesbank President Ernst Welteke have said that the bank still has room to lower rates further. Investors expect another reduction in the next six months, interest rate futures trading shows. The yield on the three-month Euribor contract for June was 2.67 percent at 8:38 a.m. Frankfurt time, compared with a money market rate of 2.94 percent. In Germany, industrial production dropped the most in 1 1/2 years in October, unemployment reached a four-year high last month and the benchmark DAX index has shed about 40 percent this year. Factory production in France, Germany's largest trading partner, fell the most in a year in October. 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//www.quote.bloomberg.com