Munich, Feb. 25 (Bloomberg) -- German business confidence probably fell for the eighth time in nine months in February, adding to evidence Europe's largest economy may be in recession, analysts said. The Ifo economic research institute's index of western German business confidence probably fell to 87.3, the same as December's 11-month low, from 87.4 in January, according to the median forecast of 32 economists surveyed by Bloomberg News. ``We'll probably see a recession in Germany,'' said Martin Hochstein, who helps manage $3.7 billion at SEB Investment Funds in Frankfurt.
The threat of war in Iraq and the euro's 24 percent gain against the dollar in the past year are hurting exports. Consumers and companies are cutting spending and the government raised taxes. Escada AG, Germany's No. 2 clothing maker, and HeidelbergCement AG, the country's biggest cement producer, were among the companies that this month reported lower sales. European Central Bank President Wim Duisenberg said on Feb. 22 he no longer expects a recovery this year, a sign he supports a reduction in borrowing costs as early as next Thursday. The economy of the dozen nations using the euro may contract in the first quarter after growing at the slowest pace in almost a decade last year, the European Union said.
Ifo is due to publish its report at 10 a.m. Frankfurt time. Munich-based Ifo questions executives each month about production, inventories, orders, prices and employment. The index peaked at 107.4 in November 1990 and reached a low of 76.7 in 1982.
ECB Cut Seen
Germany's $2-trillion economy barely grew since contracting in the second half of 2001. It probably shrank again in the fourth quarter, the Bundesbank said. Growth in neighboring France, the second-largest economy among the 12 euro nations, slowed to 0.2 percent as companies including Alcatel SA cut investment. ``The perspective of an economic recovery this year is no longer supported by the most up-to-date information,'' the ECB's Duisenberg told a press conference at a meeting Saturday of Group of Seven finance ministers and central bankers. ``This weaker outlook should contribute to lower inflationary pressures.'' The remarks boosted investors' rate cut expectations, interest rate futures trading shows. The rate on a euro deposit maturing in March fell 12 basis points yesterday to 2.47 percent at 4:12 p.m. in Frankfurt. A basis point is 0.01 percentage point. The ECB last 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.
Euro's Gain
In the U.S., destination of about a fifth of Europe's exports, industrial production rose in January by the most in six months, spurred by a surge in auto manufacturing. Business inventories rose for an eighth straight month in December. Still, the euro's appreciation is making it harder for European exporters to sell their goods overseas, companies from Italian motorcycle maker Ducati Motor Holding SpA and France's Alcatel SA have said. Exports account for about a third of Germany's and a fifth of the euro region's gross domestic product. Germany's trade surplus fell to the lowest in more than a year in December as exports declined.
Government's Woes
Germany's benchmark DAX Index has lost about a 10th of its value this year. It was the worst performing major national benchmark in 2002. Slow growth has pushed German unemployment to a 4 1/2-year high and forced the government to raise taxes in January to offset lower revenue and higher welfare costs. Support for Schroeder's Social Democrats is the lowest in 25 years, an FG Wahlen poll found earlier this month. Germany's budget deficit may breach the European Union's limit for a second year should the economy grow at a slower pace than the 1 percent forecast by the government, Finance Minister Hans Eichel has said. Pressure is mounting on Eichel, who has been accused by lawmakers of concealing the extent of the budget deficit before elections in September. Schroeder on Monday denied a report he plans to fire Eichel in a cabinet reshuffle in coming weeks. //www.quote.bloomberg.com