German business confidence hits 10-year low, survey shows

GERMAN business confidence fell to the lowest since the 1993 recession as the ascent of the euro crushed exporters’ expectations, a survey of more than 21,000 companies by the DIHK industry and trade association showed.

The share of managers who expect business to get worse increased to 42% in June from 40% in the last DIHK survey in February.

The business group represents three million, mostly small and medium-sized companies.

"The German economy remains in a dogged phase of stagnation," said Martin Wansleben, executive director of the DIHK, at a Berlin press conference.

"There are growing concerns that exports the only pillar of growth so far are faltering."

Germany's $2.3 trillion economy, which shrank in the first three months, may slip into its second recession in as many years this quarter as the euro's 26% increase against the dollar in the past year erodes export demand.

The European Central Bank this month reduced interest rates to the lowest in the 12-nation euro region in more than half a century to help revive growth.

The ECB rate cut, bringing the benchmark rate to 2%, helped boost confidence among German investors in June, a survey by the ZEW institute, based in Mannheim, Germany, showed yesterday.

The benchmark DAX Index has advanced by over two-fifths since March 12 as oil prices slumped, the war in Iraq ended and investors became optimistic an economic recovery in the US.

Twenty percent of companies expect declining sales abroad, compared with 11% in February, the survey found.

Twenty-seven percent expect exports to rise, compared with 38% in February. Exports, equivalent to about 30% of the German economy, fell for a third month in April.

Consumers are scaling back spending as the unemployment rate stays at a four-and-a-half year high and because Chancellor Schroeder plans to cut jobless benefits, ease firing laws and lower company-funded sick-pay, the DIHK said.