Fears the euro could hit US$1.45

21st December 2004, Comments 0 comments

21 December 2004 , MUNICH - The euro could hit USD 1.45 next year, the chief of one of Germany's leading economic institutes said on Tuesday and called on the European Central Bank should now start to intervene to keep the euro from becoming too strong.

21 December 2004

MUNICH -  The euro could hit USD 1.45 next year, the chief of one of Germany's leading economic institutes said on Tuesday and called on the European Central Bank should now start to intervene to keep the euro from becoming too strong.

Hans Werner Sinn, president of the ifo institut economic research think tank in Munich, said he believed the euro's average value next year would rise to USD 1.33, compared with the 2004 average of USD 1.24.

"The European Central Bank should intervene," Sinn said, citing the dangers to Europe's economy from a strong euro and saying that exchange rate fluctuations had become too great on currency markets.

Sinn said ECB intervention to curb the euro's rise could succeed as long as the United States did not take action in the other direction.

His comments came at a press conference previewing the outlook for the German economy in which he said ifo Institut was lowering its growth projection in 2005 to just 1.2 percent, from its previous forecast of a 1.4 percent rise in gross domestic product (GDP).

He said that Germany continued to lag behind the rest of the world in getting its economy moving again.

"The world economy is booming like never before in the past 28 years, but Germany is not going along," Sinn said. While the world economy is seen growing 5 percent in 2004, Germany's growth would weigh in at 1.7 percent, and that only due to more favourable calendar factors.

"The times when the economy in Germany can grow by 2 percent or more are, in our estimation, over," he said. "Germany is having a tougher time coping with globalisation than other countries."

Sinn predicted that with the new joblessness and social welfare reforms taking effect in January, there will be an initial rise in unemployment.

Joblessness will peak at 5 million in February, he warned, while overall, unemployment in 2005 will rise on average by 225,000 over this year's average levels. This would boost the 2005 joblessness rate to 10.4 percent, from this year's 10.3 percent.

However, Sinn praised the reforms about to be put into place, saying they will produce long-term benefits.

"We'll have to wait for five years until the effects take place," he said, while adding that further reforms to the labour market, including hiring and firing regulations, were still needed.

Along with ifo Institut, a further major economic thinktank, the HWWA in Hamburg, on Tuesday lowered its growth projections for 2005, predicting German GDP would rise by just 0.9 percent, well down from the institute's previous 1.4 percent prediction.

Their predictions for 2005 are well below the Berlin government's 1.7 percent forecast, while also being down from the 1.5 percent prediction which the country's six leading economic research institutes to which HWWA and Ifo belong - made in their autumn report to the German government.

DPA

Subject: German news

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