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EDITIONS
 Tuesday, 26 November, 2002, 09:48 GMT
German confidence falls again
German stock market chart
Stabilising markets is one of the few bits of good news
German business confidence has slipped for the sixth consecutive month in November as the government plans to raise taxes and cut spending.

The Ifo economic institute said western German index fell to 87.3 from 87.7 in October, which was above analysts forecasts of a decline to 86.8.

The continuing fall in sentiment comes as the German government, facing weak growth and a widening budget deficit, has proposed increasing taxes and social contributions, as well as cutting spending.

Economists closely watch the Ifo survey because it can be used to predict how the economy will behave in the future.

And the negative view of businessmen will affect their plans for future investment, and thus are likely to weaken the already sluggish German economy further.

That, in turn, is causing widespread concern across Europe.

Germany is the biggest economy in Europe, and its economic difficulties are expected to hurt the growth prospects of other EU countries, including Britain.

The European Central Bank is expected to cut interest rates, currently 3.25%, at its next meeting in December to help Germany.

Meanwhile, business conditions in the rest of Europe appear to be improving slightly.

Business confidence in Italy, Europe's fourth-largest economy, edged up unexpectedly in November, research institute ISAE said on Tuesday.

Consumers not spending

Germany's deep-seated economic problems cover a wide spectrum of the economy.

Consumer demand has also been weakened by the talk of higher taxes and social security contributions as well as rising unemployment and worries over a possible war in Iraq.

Germany's slowdown has meant a growing budget deficit, which has attracted the ire of the European Commission as Germany has breached the 3% limit in the Growth and Stability Pact.

And Germany's manufacturing industry is particularly hard hit.

The drop in the Ifo index in November was entirely due to a drop in the future hopes of German manufacturers.

The index for eastern Germany - still the weak spot in Germany's economy - fell to 95.0 from 97.8 in October.

Shaky outlook

Earlier this month the ZEW survey of financial analysts and institutional investors plunged 19.2 points to 4.2 in November, leading to predictions the economy would nosedive in the first half of 2003.

There have been some positive signs for German business, including stabilisation of global stock markets and German orders and production.

Ifo has said recently that companies were too optimistic earlier this year, and now are too pessimistic.

While the German economy may not contract, as it did in the second half of 2001, the Ifo index indicates a period of stagnation.

Ifo surveys the opinions for 7,000 companies.

See also:

21 Nov 02 | Business
20 Nov 02 | Business
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