No New Jobs Despite Better Mood

If the signs on the horizon are to be believed, Germany's economy could be on the cusp of recovery going into 2004, according to a survey of 43 business groups.

Stressing the positive, the IW economic institute said the signals for improvement in the German economy are unmistakable, with 25 of the 43 business groups questioned saying they plan to increase production going into 2004. Only five of the groups said the outlook was worse than a year ago, and 13 said the situation was unchanged.

However, the improved mood is unlikely to create more jobs.

"A small majority of industry groups expect a further drop in the number of people employed'' in Germany, the Cologne-based institute said. "This applies particularly to industries whose activities are focused on domestic customers.''

Hiring in plastics

German companies have been reluctant to hire new employees as the economy stagnated for a third year, with unemployment reaching 4.46 million in April 2003, the highest in more than five years.

Twenty industries said they expect Germany's employment level to remain unchanged in 2004, according to the IW institute. The survey said the only group planning to hire more people next year was the association representing plastics processors.

The Ifo economic institute also said it expects unemployment to drop to 4.3 million next year. It forecasts economic expansion of 1.8 percent amid an export-led recovery.

The IW survey's slightly upbeat production and revenue forecasts are due to signs of recovery in the world economic situation, especially in the U.S, IW spokesman Gerhard Fels said. "That will help our exports, although these will naturally be damped by the strong euro."

Guarded outlook

Nonetheless, business groups remain guarded in their outlooks, Fels notes. For economic improvement to really take hold in the long term, there must be an increase in investment.

"The tendency of investors is getting livelier. We'll see an upswing in factory and production tools. On the other hand, the construction industry remains the problem child of the German economy, but we haven't hit bottom yet," Fels said.

Among those German companies forecasting global recovery next year are BASF, the world's largest chemical maker, carmaker BMW and Deutsche Post, a survey by Bloomberg News Service said.

Nineteen of 21 companies that responded to an annual Bloomberg questionnaire expect a faster pace of global expansion next year. Fifteen mentioned the U.S. as a driver of growth and 10 named China. The companies have combined annual sales of about 400 billion euros ($500 billion).

"In the U.S., we see that production and demand are rising,'' said Hero Brahms, chief financial officer of Linde AG, Europe's largest maker of forklifts, in a written response to the survey. "Increasing demand in Southeast Asia, especially in China, is particularly pleasing.''

Consumer confidence stagnant

Meanwhile, Reuters News Service said German consumer confidence is stagnating, as concern about government tax-cut proposals prompted shoppers to rein in expectations of economic recovery and rising incomes. Reuters cited Germany's larget market research firm, GfK AG, for its data.

GfK's consumer sentiment index for January was unchanged at 5.5 points, after the previous month's reading was revised from 5.7, Reuters said.