German Business Confidence at Lowest in About 5 Years

Munich, July 23 (Bloomberg) -- German executives were more
pessimistic in June than at any time in almost five years, a sign
that growth is petering out in Europe's largest economy.

The Ifo institute's index of business confidence in western
Germany, one of the most closely watched gauges of Europe's
economy, fell to 89.5, the lowest since July 1996, from a revised
90.8 in May. Economists had expected a reading of 90.

Companies are paring investment and hiring as growth slows
and demand for their products falls. HypoVereinsbank AG, Germany's
No. 2 bank, and Siemens AG, Germany's largest maker of consumer
electronics, said they will fire thousands of workers.
``The second half of the year will become harder,'' said Uwe
Loos, chief executive of FAG Kugelfischer Georg Schaefer AG,
Europe's second-biggest maker of ball bearings.

German unemployment posted the biggest gain in 2 1/2 years
in June. The German economy is likely to grow less than any of its
euro partners this year, analysts have said. Germany, which
accounts for a third of gross domestic product among the dozen
countries using the euro, is the biggest European trading partner
for such countries as France and the U.K.

Pressure for Rate Cut

An index measuring executives' expectations of future
business declined to 93.6 from a revised 94.9. Ifo surveys about
7,000 companies every month.

Today's report is likely to raise pressure on the European
Central Bank to lower borrowing costs in the nations using the
euro for the second time this year as a growing number of
companies report falling earnings.

The yield on interest rate futures contracts for December
delivery, a gauge of where investors see the ECB's benchmark
interest rate by the end of the year, fell 3 basis points to
4.13 percent. That's 37 basis points below the ECB's
refinancing rate.

Infineon Technologies AG, Europe's second-largest chipmaker,
said today it had a fiscal third-quarter loss of 371 million euros
($323 million) as it took a 209 million-euro charge to write down
inventory and sales slumped.
``It is absolutely necessary in a phase of decline that the
central bank cut interest rates,'' said Ulf Rittinghaus, chief
executive of Sachsenring Autmobiltechnik AG, a supplier for
DaimlerChrysler AG and Volkswagen AG. ``We see it every day that
large manufacturers are forecasting declining sales.''

The ECB lowered the price of credit for the first time in two
years on May 10, by a quarter point to 4.5 percent. Policy makers
say they want to see more evidence that inflation is receding
before they'll decide whether to pare borrowing costs again.

No Recovery

Analysts say it may take a while for a rebound in German
manufacturing to appear. ``Quite frankly, Ifo gives no reason to
be hopeful,'' said Volker Hofmann, economist at the BDB German
banking association, which represents about 280 commercial banks.
``I can see the bottom, but not the recovery.''

The RWI institute, one of Germany's six main private economic
research groups, on Wednesday lowered its growth forecast for
Germany to 1.5 percent from the previous estimate of 2.1 percent
set in April.

Still, the RWI also said Germany may rebound in the second
half of the year after reports showed industrial production in May
climbed for the first time in three months, while factory orders
surged 4.6 percent in the same period.

Gesamtmetall, Germany's largest employer group, on Thursday
said metals, electronics and car companies added more than 100,000
jobs in the year to May, after striking a lower-than-expected wage
deal with IG Metall, the biggest union, in March of last year.
Half of the workers added were previously unemployed, Gesamtmetall
added.

Ifo, which is 50 percent funded by the government, asks
executives each month about the current and future outlook for
their companies.

--Sonja Dieckhoefer in the Frankfurt newsroom (49 69) 92041-151,
or at sdieckhoefer@bloomberg.net with reporting by Rainer Buergin
and Nicole Weimer /rhh