Economic recovery helps toease pressure on Schroeder

9th July 2004, Comments 0 comments

9 July 2004 ,

9 July 2004

BERLIN – German Chancellor Gerhard Schroeder's cabinet is gathering Friday at an 18th century castle near Berlin for its annual summer retreat as signs continued to emerge that Europe's biggest economy is on track to an economic upturn.

Indeed, the Schroeder cabinet is gathering at Schloss Neuhardenberg at the end of what has been a good week for the German economy with key data, including production, exports, unemployment and factory orders, all beating economists' forecasts and consequently adding to hopes that three years of economic stagnation has finally drawn to an end.

But the Schroeder cabinet's is holding its second annual retreat at Neuhardenberg with public opinion polls showing support for Schroeder's Social Democrats (SPD) having hit rock bottom.

If an election was held now, the SPD could get expect to gain a pitiful 24 percent of the vote, according to a poll published in the weekly Stern this week. The conservative opposition Christian Democrats would romp home to government win 45 percent.

However, half-way through the Schroeder's second term in office and the government's hopes that a rebound in the economy might help to convince voters that the tough and deeply unpopular welfare, health and labour market reforms that the Social Democrat-led coalition has introduced might be starting to pay off.

Officials have been playing down the prospects of any major statement on economic reform from Neuhardenberg with the two-day meeting expected to be more of a nuts-and-bolts meeting including discussion about the labour market reforms that have already been unveiled unemployment as well as further changes to the health system, childcare and education.

Ministers are also expected to discuss the troubled economy of Germany's former communist east.

In the build-up the Neuhardenberg meeting, leading national and international economic institutes have announced a string of upward revisions in their growth forecasts for the German economy with the International Monetary Fund upgrading its 2004 growth prediction for the nation from 1.6 percent to 1.8 percent.

Figures released Friday underscore the pivotal role played by exports in Germany's recovery with the Federal Statistics Office saying that exports bounded ahead by 11.8 percent year-on-year in May.

The worst even appears to be over for the nation's hard-pressed labour market with seasonally adjusted unemployment falling for the first time this year.

Data released by the Federal Labour Office showed the numbers out of work dropping by 1,000 in June. Economists had forecast a rise of 10,000 with the data showing unemployment remaining stuck at 10.5 percent.

While unemployment in Germany's former communist east rose by 5,000, economists saw a 6,000 fall in the numbers out of work in the more economically important western part of the nation as an encouraging sign that the labour market might be stabilising.

With a global economic upswing taking hold German industrial production rose for a second month in May increasing by 1.1 percent from April, when it rose 1.4 percent. Economists had forecast an increase of just 0.2 percent.

"This points to the German economy having grown noticeably during the second quarter," said Elisabeth Andreae, economist with Commerzbank AG. She expects the economy to grow by two per cent this year.

Likewise data released earlier in the week showed German factory orders rising unexpectedly in May, propelled by strong growth in foreign orders.

Economists had expected no change in May order books after they rose by 1.9 percent in April. Instead they gained 1.6 percent from May.

But while foreign orders raced ahead by 4.1 percent, domestic orders slumped by 0.6 percent, further underscoring the fragile state of Germany's domestic economy and somewhat lopsided upswing that is underway.

Indeed, the batch of data that has emerged serves to highlight how the nation's export machine remains the driving force behind growth and is overshadowing a sluggish domestic economic performance.

More to the point, the country's high unemployment rate is continuing to dampen consumer sentiment with sluggish household spending representing a drag on the nation's recovery, which began to take shape as the new year started. German retail sales dropped 1.7 percent in May to record the largest decline since November

In addition with growth expected to fall short of the two per cent rate that many analysts believe is necessary to underpin a dramatic pickup in jobs, most economic forecasters are not expecting a significant improvement in the labour market to take hold until later in the year or even next year with companies still announcing job cutting programs.

Equally sobering, the upwardly revised German growth forecasts are less than half the 4.4 percent growth rate that the US is tipped to chalk up year and is well down on Japan's predicted 3.4 percent growth rate.


Subject: German news

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