/www.bloomberg.com/ By Christian Baumgaertel
Frankfurt, Feb. 24 (Bloomberg) -- Germany's economy is edging toward its second recession in as many years and there are few signs of improvement, government and company reports this week may show.
The Ifo index of western German business confidence was probably little changed in February at 87.3, compared with January's 87.4, a survey of 32 economists by Bloomberg showed. The government will probably say the economy shrank 0.1 percent last quarter, a survey of 31 economists showed.
``The chances for an economic recovery are slim,'' said Bernd Pursteiner, who helps manage 6 billion euros ($6.5 billion) at DG Capital Management in Frankfurt. ``We have to expect a further slowdown in the second and third quarter.''
Concern about a war in Iraq and a stronger euro are hurting exports. At home, consumers are spending less, companies including Deutsche Bank AG and truck maker MAN AG are laying off workers, investment is shrinking and the government raised taxes. The economy barely grew since contracting in the second half of 2001, eroding support for Chancellor Gerhard Schroeder.
ThyssenKrupp AG, Germany's largest steelmaker, on Friday had its credit ratings cut two steps to junk by Standard & Poor's. Audi AG, whose first-half profit fell 18 percent, may follow parent company Volkswagen AG this week in reporting lower full- year earnings.
The Ifo economic institute, which each month surveys 7,000 executives, will publish its business confidence index on Tuesday at 10 a.m. in Frankfurt. The Federal Statistics Office is scheduled to report fourth-quarter growth figures at 8 a.m. on Wednesday.
France Slowing
Germany accounts for about a third of the $7 trillion economy in the dozen nations using the euro. France, Germany's most important trading partner, grew just 0.2 percent last quarter, as companies such as Alcatel SA and Schneider Electric SA scaled back investment and production.
The European Commission and the European Central Bank said they may have to lower their growth forecasts for the region. ECB policy makers have indicated they may pare credit costs from their current three-year low if the expected recovery fails to materialize.
``In the euro zone as far as interest rates are concerned we still have some room for maneuver, more than some other central banks, but we must not waste our ammunition,'' ECB council member Guy Quaden said Monday.
The bank pared rates by half a point on Dec. 5, the first reduction in more than a year. The Bank of England on Feb. 6 cut its benchmark rate to the lowest level since 1955. U.S. rates are at the lowest level in 41 years.
U.S. Recovery
Investors expect lower borrowing costs by the end of the second quarter, interest rate futures trading shows. On Friday, the rate on a three-month euro deposit maturing in June was 2.34 percent at 2:08 p.m. in Frankfurt, compared with a money market rate of 2.68 percent.
In the U.S., destination of a 10th of German exports, industry production rose in January by the most in six months, spurred by a surge in auto manufacturing. The world's largest economy grew 2.4 percent last year, 12 times the rate of growth in Germany.
German companies may not benefit much from stronger growth overseas, because the 24 percent rise of the euro against the dollar in the past year makes their goods more expensive abroad. The trade surplus fell to the lowest in more than a year in December as exports declined.
DaimlerChrysler AG, the world's fifth-biggest carmaker, on Thursday said profit will increase in 2003 with cost cuts and new models at its U.S. unit Chrysler. The company predicted sales will be little changed because of the euro's gain against the dollar and forecast no growth in car demand in Western Europe and Japan and a shrinking U.S. market.
Iraq Crisis
Support for Schroeder's Social Democrats is the lowest in 25 years, an FG Wahlen poll found earlier this month. The government in January raised taxes and social security contributions, as slow growth erodes tax revenue and boosts welfare costs.
Concern about a war in Iraq is further damping confidence among executives and consumers and boosting oil costs. The price of a barrel of Brent crude oil rose to $31.97 at 2:11 p.m. on Friday, from 31.56 the day before, after U.S. Defense Secretary Donald Rumsfeld said U.S. forces in the Persian Gulf are ready to attack Iraq as soon as President George W. Bush gives the order.