Berlin, Feb. 18 (Bloomberg) -- German executives are growing more pessimistic as Chancellor Gerhard Schroeder raises taxes and workers demand higher wages, a survey of 25,000 companies showed. The share of managers who expect business to get worse rose to 40 percent in February from 29 percent in the last survey by the DIHK industry association in October. The business group represents 3 million, mostly small and medium-sized companies. ``Germany is deep in an economic slump and no improvement is in sight,'' Martin Wansleben, executive director of the DIHK, told a press conference. ``The government's wavering economic policy is playing a big role in this.'' Europe's largest economy probably shrank in the fourth quarter, the Bundesbank said. The DIHK said it now expects no growth this year, having previously predicted expansion of 1 percent. Schroeder is raising taxes to reduce the budget deficit after breaching the European Union's deficit limit last year.
German salaried workers' pay rose more last year than consumer prices, the Federal Statistics Office said. Wages climbed 2.3 percent last year, one percentage point more than the inflation rate. Companies including Deutsche Bank AG and truck maker MAN AG are cutting jobs as rising labor costs and weak demand reduce profit. Executives' assessment of the business situation held at October's record low, the DIHK said. The organization's members range from Luerssen Werft GmbH & Co., a Bremen-based maker of yachts and warships to Loewe AG, a maker of televisions in the Bavarian city of Bayreuth.
More Job Cuts
Companies have scaled back their staffing plans since October, the survey showed. Thirty-nine percent expect to shed jobs this year, compared with 33 percent four months ago. German unemployment rose to 4 1/2-year high of 4.27 million in December. Germany's benchmark DAX stock index has shed 7 percent since Jan. 1. German stocks had their worst year since 1948 in 2002. The DAX fell 0.2 percent to 2704.44 at 2:36 p.m. in Frankfurt. Krones AG, a bottling machine maker, expects earnings growth to slow because of ``uncertainties'' about a possible war in Iraq and a new law imposing a deposit on cans. Beru AG, a maker of ignition systems whose customers include Volkswagen AG, said nine- month profit fell as demand for cars declined. Western European new car sales fell 7 percent in January, the manufacturers' association ACEA said. A plan by Schroeder's government to raise taxes on the private use of company cars by 50 percent may have hurt sales at companies including DaimlerChrysler AG and Bayerische Motorenwerke AG.
Relying on Exports
Germany ``has to fear a recession,'' its second in two years, should exports fail to pick up, Wansleben said. Exports are ``the only bright spot'' in the economic outlook, he said. Executives grew more optimistic about the prospects for exports, the DIHK survey found. Thirty-eight percent said they expect sales abroad to rise next year, compared with 34 percent in October. Every third German job relies on exports. 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. An index measuring investors' expectations of future economic growth in Germany unexpectedly rose for a second month in February. The ZEW institute's index, based on a survey of 322 analysts and investors, climbed to 15 points from 14 in January.
Iraq Concern
Still, expectations for faster export growth rest on the assumption that a possible war in Iraq and the appreciation of the euro won't have a long-term impact, Wansleben said. ``Our exports are still stable, but in the case of a war we fear a substantial, global drop in exports by about 20 percent,'' said Nikolaus Schimmel, chief executive officer of Schimmel Pianofortefabrik GmbH, a 118-year old maker of pianos whose customers include The American Quartet and Wayne Marshall. Deutsche Lufthansa AG, Europe's No. 3 carrier, expects the number of passengers to drop by one-fifth in 2003 in the event of a war in Iraq, Chief Executive Juergen Weber said. Robert Bosch GmbH expects 2003 to be ``difficult'' amid the threat of a war. The DIHK, which conducts its survey of executives three times a year, said it expects the European Central Bank to lower interest rates should the U.S. attack Iraq. The ECB kept its benchmark interest rate at a three-year low of 2.75 percent on Feb. 6, though since then, policy makers have said the region's economy may expand less than expected.
Interest Rates
``I assume that in the event of a war in Iraq, interest rate reductions will come relatively quickly,'' said Axel Nitschke, the group's chief economist. ``With or without Iraq, when economic developments are so bad, there should be widening scope for interest rate reductions.'' The implied rate on the June three-month Euribor futures contract, was 2.36 percent at 2:20 p.m. Berlin time, down from 2.38 percent a week ago, suggesting investors' expectations for a reduction in interest rates are increasing. The current three- month lending rate is 2.69 percent. ECB President Wim Duisenberg said yesterday that interest rates remain ``appropriate to preserve a favorable outlook for price stability,'' though he also said the bank will probably lower its 2003 economic growth forecast for the euro region//www.quote.bloomberg.com