Frankfurt, Feb. 26 (Bloomberg) -- Germany's economy stagnated in the fourth quarter and Spanish growth was the slowest in a year as demand for exports waned, giving the European Central Bank reasons to lower interest rates. Gross domestic product in Germany was unchanged from the preceding three months, when it rose 0.3 percent, the government said. Spain's economy expanded 0.3 percent, less than half the pace of the third quarter. The two account for 40 percent of the euro area's economy. ``These figures are absolutely consistent with a rate cut,'' said Luigi Buttigilione, a director of Barclays Capital in London and a former economist at the Italian central bank, who predicts a reduction as soon as March.
The currency's 24 percent rise against the dollar in the past 12 months is making the region's products less attractive while companies from Siemens AG to Santander Central Hispano SA fire workers, eroding consumer confidence. European Central Bank President Wim Duisenberg has signaled he's ready to cut interest rates to spur growth. ``Duisenberg has thrown in the towel,'' said Dieter Wermuth, an economist at UFJ Bank Ltd. in Frankfurt and a former aide to the German government's council of economic advisers. ``He's resigned to the fact they were too optimistic.'' ECB policy makers, who lowered their benchmark rate by a half point to 2.75 percent in December, meet on March 6. The rate on a three-month euro deposit maturing in March yielded 2.43 percent at 12:22 p.m. in Frankfurt. The April rate was 2.26 percent.
`Running Out of Steam'
The pace of expansion is also slowing in the U.K., where the central bank cut its benchmark interest rate to a 48-year low of 3.75 percent this month. Gross domestic product rose 0.4 percent last quarter from 0.9 percent in the previous three months, the government said today, the same as an initial estimate published in January. ``There's a sense of an economy that's running out of steam,'' said Allan Allkins, chief executive officer of Beale Plc, which owns 12 department stores in Britain.
Germany's economy, Europe's largest, has barely expanded since a recession in the second half of 2001. Consumer spending grew 0.1 percent in the fourth quarter, from 0.4 percent in the third. Exports increased 0.3 percent, from 2.9 percent in the July to September period. Germany's benchmark DAX index declined 0.8 percent to 2466.6 at 12:31 p.m. in Frankfurt. The index fell 3.3 percent yesterday and shed more than two-fifths of its value last year. The yield on the 3 percent German note maturing in 2004 rose 1 basis point to 2.29 percent. A basis point is 0.01 percentage point
Spanish Economy
In Spain, exports expanded 1.1 percent, compared with 5.9 percent in the third quarter. The construction industry, which has led gains in Europe's fifth-largest economy, grew at a slower pace while companies pared spending. ``We're going to have to fight to keep growing,'' said Juan Rizo, chief executive officer of Logista SA, a delivery company whose customers include Iberia Lineas Aereas de Espana SA and Repsol YPF SA, Spain's biggest oil company. ``It's not going to be an easy task.'' Exports account for more than a third of the gross domestic product of the euro region, a $7 trillion economy, second in size only to the U.S. Siemens, Germany's largest manufacturer, Alcatel SA of France and Schering AG, a maker of birth-control pills, have said the euro's rise is hurting business. The ECB, which sets monetary policy for the euro nations, is moving closer to an interest rate cut as the economy struggles to grow. Duisenberg said Saturday he no longer expects a recovery.
Getting Worse
``Stagnation will continue,'' said Hans-Joerg Naumer, an economist at Deutscher Investment Trust in Frankfurt, which manages about 45 billion euros ($48 billion). ``Exports will be worse than last year and domestic demand will be the weak point in the economy.'' Consumer confidence dropped to the lowest since 1995 last month. Spending by shoppers accounts for more than half the economy. The government is seeking to avoid breaching a European Union budget deficit limit for a second straight year. After winning September's election by the narrowest margin of any post-war government, Schroeder's Social Democratic Party and Green Party coalition agreed to boost the tax burden on individuals and companies and cut spending.
Executives have said the government's tax policies may also deter investment and hiring. Sluggish growth ``has to do a lot with the political landscape'' and tax concerns, said Ralf Bufe, chief executive officer of Pfleiderer, in an interview. Growth in the $2 trillion German economy is also waning as concerns about the threat of war in Iraq prompt companies to delay spending or scale-back operations. DaimlerChrysler AG, the world's fifth-largest automaker, last week declined to give a full-year profit forecast, citing ``uncertainties in the political and economic environment.'' Deutsche Lufthansa AG, Europe's No. 3 airline, has said it will cut the number of planes flown in Europe and freeze hiring. //www.quote.bloomberg.com