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dpa German Press Agency
Published: Wednesday October 25, 2006

Munich- German business confidence improved in October and the number of jobless was predicted to decline as Europe's biggest economy continued its recovery, experts said Wednesday. The Munich-based ifo economic institute said its monthly survey of 7,000 executives rose to 105.3 points from 104.9 points in September, ending a period of three months in decline.

"These survey results indicate that the economic expansion will continue despite the increase in VAT next year," ifo president Hans-Werner Sinn said.

Germany plans to raise value-added tax from 16 to 19 per cent on January 1 in a move which some economics fear will hamper economic recovery.

Analysts had predicted the ifo index, which is considered one of Europe's key economic indicators, would dip back to 104.5 this month. The index hit a 15-year high of 106.8 in June.

Coinciding with the survey results, economists at Germany's leading banks predicted a drop in the number of people out of work in October.

Their figures showed a drop of 75,000 from September to 4.16 million this month, meaning the unemployment rate would dip below the 10 per cent mark for the first time since November 2002.

Germany's Federal Labour Agency is due to announce the October unemployment figures on November 2.

Economics Minister Michael Glos said last week that the government expected the unemployment tally, which had averaged 4.5 million persons, might drop below 4 million at the end of 2007.

Glos predicted steady economic growth after a bump at the start of 2007 when the increased VAT kicks in.

The government's growth forecast matched figures by Berlin's six independent advisers of 2.3 per cent in real terms in the current year and 1.4 per cent next year.

Last Thursday, the six leading economic institutes had issued gross domestic product (GDP) forecasts for 2006 and 2007, but warned that plans to increase taxes and slash tax relief would lower buying power and weaken the fragile economic recovery.

Their report was critical of Chancellor Angela Merkel's grand coalition of conservatives and social democrats for what it saw as its failure to press ahead with a programme of far-reaching reforms.

Plans to overhaul the labour market, health care system and company taxation were "far behind the measures needed for a considerable improvement in growth and employment," it said.

© 2006 dpa German Press Agency