May 23 (Bloomberg) -- German business confidence probably held near a 19-month low in May and investor optimism was little changed as Europe's economic outlook deteriorated, surveys of economists showed.

The Ifo institute in Munich may say on May 25 its confidence index was little changed at 93.4, the median of 43 forecasts in a Bloomberg survey showed. A day earlier, the ZEW Center for European Economic Research will probably say its index of institutional investor and analyst sentiment rose to 21 from 20.1, a separate survey showed.

``The domestic economy is still weighing on confidence,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``Growth in the first quarter was fueled mainly by exports, and you can't expect that to continue with the global economy slowing.'' Deutsche Bank on May 20 cut its forecast for euro region growth this year to 1.4 percent from 1.6 percent.

The outlook for growth is deterring companies from hiring and investing in the euro region, pushing unemployment to near a four- year high of 8.9 percent and leading to declining popularity for governments. Germany's economy is forecast by the European Commission to be the slowest-growing in the 25-nation European Union this year.

German Chancellor Gerhard Schroeder's Social Democratic Party was defeated in an election in the country's most populous state of North Rhine-Westphalia yesterday after 39 years of rule, exit polls showed. Opinion polls in France and the Netherlands on May 20 showed voters are poised to reject the proposed European Union constitution in referendums over the next two weeks.

Euro Drop

Concern about a rejection of the constitution helped push the euro to a seven-month low of $1.2559 against the dollar on May 20. The currency has dropped about 8 percent from its Dec. 30 high of $1.3666 as the gap between the U.S. and European growth outlook widened.

Germany's domestic economy probably contracted in the first quarter, said eight out of 10 economists surveyed by Bloomberg before a breakdown of first-quarter gross domestic product tomorrow. Europe's largest economy grew a quarterly 1 percent in the first three months because of export demand, a preliminary estimate from the Federal Statistics Office showed on May 12.

Energy Relief

That growth rate was ``somewhat exaggerated'' by the adjustment for the number of working days in the quarter, the Bundesbank said on May 17. The pace of expansion will slow this quarter, the German central bank predicted.

Improving prospects for growth and preventing a further decline in German business sentiment, oil prices, as measured by Brent crude futures, have dropped 16 percent from their April 4 record of $57.65 per barrel, to $48.03 in London on May 20.

``The oil price speaks in favor of higher confidence, and the stock market has been doing better,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt and a former aide to the German government's panel of economic advisers. ``We expect a slight improvement in the Ifo index.''

Business confidence probably improved in France from an 18- month low in April, while sentiment in Italy declined to the lowest in more than four years, separate surveys of economists showed. Growth in France, the euro region's second-largest economy, slowed more than expected in the first quarter. Italy fell into recession in the period.

France's statistics office publishes its confidence index on May 27 and Italy's Isae institute releases its business sentiment report on May 25, the same day as Ifo.

Forecast Cut

Even after the recent drop in energy costs, ``the oil price remains on a very high level,'' European Central Bank council member Yves Mersch said in an interview on May 20. ``The oil price will probably have a larger impact on the growth numbers than on the inflation'' in Europe.

The Brussels-based commission pared its 2005 growth forecast for the euro region to 1.6 percent from 2 percent on April 4 and said there are risks to the new estimate. The commission also predicted U.S. expansion of 3.6 percent this year, making this the 13th year in the past 14 euro region growth will trail the U.S.

Political Pressure

Politicians including Italian Prime Minister Silvio Berlusconi have blamed the ECB for not doing enough to stoke growth. ECB President Jean-Claude Trichet has ruled out further rate cuts, after keeping the benchmark interest rate at a six- decade low of 2 percent for almost two years.

Trichet will address the European Parliament's economic and monetary affairs committee in Brussels at 3 p.m. today.

Investors have all but abandoned expectations for a rate increase this year as economic growth slows, futures trading shows. The implied rate on the December Euribor interest-rate futures contract was 2.20 percent on May 20, down from 2.59 percent on March 29.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999. The Euribor three-month money market rate was 2.13 percent.

To contact the reporter on this story: Christian Baumgaertel in Frankfurt at cbaumgaertel@bloomberg.net.

Last Updated: May 22, 2005 19:04 EDT