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Economic outlook darkens for 2010

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Economic outlook darkens for 2010
Photo: DPA
13:47 CET+01:00
Prospects for Europe's biggest economy look gloomier in 2010 as consumer sentiment, business investment and borrowing polls warn of weak patches following the worst recession since World War II.

Consumer sentiment is down for the third month running, business investment is tipped to gain just two percent after falling by 11 times as much, and firms say it is getting harder to get loans, all of which could hamper a recovery.

Economists nonetheless estimate German business activity to expand by 1.5 percent next year following a contraction of about five percent in 2009, capping the country's deepest post-war recession.

Much depends on exports to growing Asian and emerging economies however, since domestic consumption appears set to stagnate after holding up relatively well during the downturn.

Consumer sentiment has now fallen for three consecutive months, the GfK research institute said on Tuesday, and the climate would likely cool further as the new year gets underway, it added after polling around 2,000 people.

Although "private consumption should not become a drag on growth next year ... it is also far from being a growth engine," ING senior economist Carsten Brzeski noted.

Looking at another source of growth, German manufacturers are set to invest only a little more next year, the Ifo economic research institute said meanwhile.

Companies "are planning only a slight increase of two percent in their investments for the coming year," Ifo found after questioning 1,800 firms in a key sector of the economy.

The survey indicated that investment this year would fall by 22 percent from the level in 2008.

Smaller firms in particular planned to scale back investment owing to high levels of unused capacity, "one of the main reasons for the weak economic recovery," Ifo said.

In another poll, the institute found more German companies in the industrial and trade sectors are finding it harder to get bank loans, with over 50 percent of construction firms saying credit obstacles have increased.

"For the first time in more than three years, more than half of the surveyed building contractors rated banks' lending policies as cautious," Ifo said.

"Since construction is one of the key industries, an upswing could be hindered by the credit hurdle in the building sector."

Commerzbank economist Simon Junker said "concern about an imminent credit crunch continues unabated in Germany," but added that German companies had low levels of debt compared to others within the 16-nation eurozone and were thus "likely to suffer less from difficult financing conditions."

In its latest survey of the private sector, the European Central Bank said eurozone lending contracted for the second consecutive month in October.

That confirmed a turning point in September, when the ECB noted the first decline since it began keeping records in 1992.

Germany has named a credit mediator to assist small- and medium-sized enterprises and Economy Minister Rainer Brüderle has urged banks to "fulfill their duties" to the wider economy.

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