/www.bloomberg.com/ By Christian Baumgaertel
Frankfurt, (Bloomberg) -- The German economy probably contracted in the fourth quarter, bringing Europe's largest economy closer to the second recession in two years.
Gross domestic product was ``somewhat lower'' in the fourth quarter than in the previous three months, the Bundesbank said in its monthly report. Germany accounts for about a third of the economy of the dozen nations sharing the euro, which may shrink this quarter, the European Union estimates.
``We could well be in a recession,'' said Dieter Wermuth, an economist at UFJ Bank Ltd. in Frankfurt and a former aide to the German government's council of economic advisers. ``After the catastrophic jobless figures in January, it looks very much like we have entered the first quarter on the wrong foot.''
German consumers are spending less, companies from Siemens AG to Deutsche Bank AG are firing workers and a stronger euro is hurting demand for exports. The economy has barely grown since the recession of the second half of 2001, eroding the popularity of Chancellor Gerhard Schroeder.
The European Central Bank, which sets monetary policy for the euro region, will probably reduce its forecast for economic growth, the bank's president, Wim Duisenberg, said today.
DaimlerChrysler AG, the world's fifth-biggest carmaker, earlier this month said it ended 2002 with the smallest quarterly profit of the year and declined to give a 2003 outlook. Germany's DAX Index, the world's worst performing major national benchmark in 2002, has lost 6.4 percent this year.
Tumbling Popularity
While the global slowdown added to the poor performance, the reasons are ``more and more homemade,'' the Bundesbank said. ``The economy has been in a phase of virtual stagnation for more than two years now.''
German unions have said they oppose Schroeder's plans to loosen laws protecting workers from dismissal that executives say deter them from hiring. Unemployment rose to a 4 1/2-year high in January.
The government in January raised taxes and social security contributions, as slow growth erodes tax revenue and boosts welfare costs. Support for Schroeder's Social Democrats is the lowest in 25 years, an FG Wahlen poll found earlier this month.
Exports -- which account for about a third of Germany's gross domestic product -- helped the economy grow 0.2 percent last year as consumers cut spending for the first time since 1990 and companies invested less. The economy of the 12 euro nations probably grew at the slowest pace in almost a decade, the European Commission said.
U.S. Economy
In the U.S., which buys about a 10th of Germany's exports, retail sales excluding automobiles rose in January by the most since September 2000 and fewer people sought jobless benefits, supporting the Federal Reserve's view that the economy may accelerate. The world's No. 1 economy grew 2.4 percent last year.
Some executives expect a recovery later this year. Business confidence rose in January from an 11-month low. ThyssenKrupp AG, Europe's third-largest steelmaker, and Celanese AG, the world's biggest maker of acetate in cigarette filters, last week said they returned to profit.
Stronger business confidence gives ``hope that the German economy may regain lost ground in the first months of this year,'' the Bundesbank said. The economy grew half a percent from the year- earlier period, the bank said.
Western German manufacturers will probably increase investment by an inflation-adjusted 4 percent this year after the cutbacks in 2002, a survey by the Ifo economic institute showed.
No Turnaround
Still, the Munich-based Ifo institute, which each month surveys 7,000 executives for the business confidence report, said today the gain isn't an indication of an economic turnaround. Industry production, factory orders and retail sales all dropped in December.
``The economy probably shrank 0.1 percent last quarter,'' said Gerd Hassel, an economist at ING BHF-Bank AG in Frankfurt. ``It looks like we will land in a recession,'' defined as two consecutive quarters of contraction.
ECB council members from Duisenberg to Ireland's John Hurley have said the economy may grow less than they expected, suggesting policy makers are moving closer to lowering interest rates. The ECB council kept rates at a three-year low of 2.75 percent on Feb. 6.
``I indeed regard it as likely that when we next time come out, we'll have to revise down slightly our December prognosis,'' Duisenberg told the European parliament's economic and monetary affairs committee.
No Date for Recovery
While Duisenberg still expects growth to pick up in the second half, he said he no longer wants to put a date on when the rate of expansion would reach close to 2 percent to 2.5 percent. On Feb. 6, he said it would be at the end of the year.
Investors expect a rate reduction in the first half of 2003, interest rate futures trading suggests. The rate on a three-month euro deposit maturing in June fell 1 basis points today to 2.36 percent at 6:48 p.m. in Frankfurt, compared with a money market rate of 2.69 percent. A basis point is 0.01 percentage point.
Beru AG, which makes ignition systems for companies including Volkswagen AG and Nissan Motor Co., said Thursday fiscal nine- month net income declined amid weak demand for cars in Europe and North America.