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German Key Index Slips Again

October 28, 2002

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BERLIN (AP) _ Germany’s key indicator of business sentiment fell for the fifth straight month in October as Europe’s biggest economy struggled to find new momentum, according to a report released Monday.

The Ifo economic institute’s index, based on a survey of 7,000 executives, fell to 87.7 from 88.2 in September, following a similar drop the previous month.

The think tank’s index is seen as a leading indicator of where the German economy could be headed. October’s rating was the lowest this year.

Germany’s economy, Europe’s biggest, has been stuck in a period of near-zero growth that is not enough to dent its jobless rate of just under 10 percent. The economy grew only 0.3 percent in each of the first two quarters this year and shrank slightly in the last half of last year.

Economists have been predicting a recovery, but a series of adverse developments _ including the prospect of war in Iraq and steep falls in stock markets in Europe and the United States _ have raised doubts about how soon any recovery will come and how strong it will be.

German Finance Minister Hans Eichel admitted this month that tax shortfalls meant that the budget deficit would likely exceed the limit of 3 percent of gross domestic product, a level laid down in a European Union pact designed to protect the value of the euro.

The admission came amid a wobbly start for Chancellor Gerhard Schroeder’s center-left government after it narrowly won re-election Sept. 22.

The coalition has since announced steps to raise taxes, cut spending and borrow more to plug the budget gap for next year, drawing accusations from defeated conservatives that it cheated voters.

Schroeder was to go before parliament Tuesday to make his first policy speech since the election.

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