Exports up, but Germany breaches budget rules
24 August 2004 , WIESBADEN - Exports boosted the German economy to its fastest expansion in more than three years in the second quarter, but the government's overshoot of the eurozone deficit limit may get even worse, according to official figures released Tuesday. Consumer spending plays practically no role in German growth, the figures from the Federal Statistics Office confirmed. Economists warned that if the world economy were to trip up later this year, German exports would suffer as well. German gros
24 August 2004
WIESBADEN - Exports boosted the German economy to its fastest expansion in more than three years in the second quarter, but the government's overshoot of the eurozone deficit limit may get even worse, according to official figures released Tuesday.
Consumer spending plays practically no role in German growth, the figures from the Federal Statistics Office confirmed. Economists warned that if the world economy were to trip up later this year, German exports would suffer as well.
German gross domestic product (GDP) grew 0.5 percent in the second quarter compared to the first, the Wiesbaden-based statisticians said, confirming their earlier estimate. It was the best growth since the start of 2001.
The government in Berlin played down the office's disclosure that the public deficit in the first six months had ballooned to four percent of GDP. Under the Maastricht treaties, the euro countries must keep their deficits, measured by full years, under three percent.
A spokesman for Finance Minister Hans Eichel said the only figure that mattered was the 12-month one, and income and expenditure could go either way by December.
"Income and expenditure are not evenly spread, and a large element of this is estimated, so a meaningful interpretation of the figure is not possible," he said.
The federal, state and local governments spent EUR 42.7 billion over their income from January to June. In the matching six months last year, the deficit, adjusted for calendar and seasonal effects, had been 3.6 percent.
Germany can only escape a breach of the Maastricht limit by drastically increasing its GDP or by forcing all government levels to cut spending. Continued high borrowing is likely to water down the value of the common euro currency.
Last year's Germany's full-year deficit was 3.8 percent of GDP, the second annual deficit to breach Maastricht treaty stipulations.
European Union leaders are to discuss next week whether to penalize Germany and France for excessive deficits.
E.U. finance ministers have decided in the past not to penalize the two heavyweights, but the European Court of Justice ruled in July that this suspension of proper procedures was invalid.
In Brussels, the European Commission said it would wait till it had signed off its own economic analysis on 26 October before commenting. The EU's spring forecast tipped the German deficit for 2004 at 3.6 percent.
Karl Heinz Daeke, head of the German Taxpayers' Union, called the new figure a "shot across the bows".
"If politicians don't get started on cutting expenditure, we'll have an even higher deficit than last year," he said.
Holger Bahr, chief economist at Deka Bank in Frankfurt, warned that Germany's economy would be hit if there was a world downturn.
High oil prices could limit world growth he warned, and predicted, "Exports won't produce the same sort of boost in the time to come." However Germany would not go into recession, he added: Deka forecast full-year growth of 1.9 percent, with 1.4 percent next year.
Bank of America chief economist Holger Schmieding noted that the figures showed Germans were saving more in the second quarter.
"Consumers don't believe in the recovery yet," he said.
Quarter to quarter, Germany's export surplus rose 0.5 percent while private consumption only increased 0.1 percent. In the first quarter, the export surplus had risen a robust 1.2 percent.
Subject: German news