German economicpessimism sets in

5th November 2004, Comments 0 comments

8 November 2004 , BERLIN - A dramatic slump in German output has set the stage for a downbeat end to the year for Europe's biggest economy, as high oil prices and a strong euro whittle away its growth. The optimism which emerged among economists 12 months ago about Germany's economic prospects this year has faded with the 1.2 percent fall in September production announced Friday by the economics ministry. Economists had predicted a rise of 0.6 percent. The publication of the figures came after other data s

8 November 2004

BERLIN - A dramatic slump in German output has set the stage for a downbeat end to the year for Europe's biggest economy, as high oil prices and a strong euro whittle away its growth.

The optimism which emerged among economists 12 months ago about Germany's economic prospects this year has faded with the 1.2 percent fall in September production announced Friday by the economics ministry. Economists had predicted a rise of 0.6 percent.

The publication of the figures came after other data showed a contraction in order books, a decline in retail sales and unemployment stuck at more than 10 percent.

Signs of slackening growth led the European Central Bank once again to leave interest rates at a post-war low of 2 percent Thursday with ECB chief Jean-Claude Trichet saying the outlook for Germany and its eurozone partners "is surrounded by continuing uncertainty".

Concern about the prospects for Germany and the other 12 members of the eurozone have been growing. There are concerns that this year's jump in energy costs by more than 50 percent could trigger a sharp rise in inflation and that the strong euro could hit exports.

German employers have begun rolling back employee benefits and in some cases slashing their workforces or extending working hours with no extra pay, in a bid to cut costs in the face of rigorous global competition.

With evidence that inflation is climbing and the euro rising, Trichet said that high oil prices "constitute a sizeable adverse shock" to the eurozone and warned about the undesirable risks for growth posed by "excessive volatility and disorderly movements" in the currency market.

Analysts believe the euro will soon breach USD 1.30, after it edged up again Friday on the back of renewed market concerns about US economic growth and budget and trade deficits.

Economists are concerned that the euro's rapid rise will stifle moderate growth in the eurozone by depressing exports while domestic demand remains weak.

Recent German economic data appear to confirm that scenario with economists scaling back their growth forecasts as the year progressed. Fears about the impact of high oil prices and now the euro have set in.

The 1.2 percent fall in September production followed a similar drop in August, adding to evidence that the recent strong rise in German exports was failing to boost domestic demand.

At the same time, retail sales fell by more than expected in September, dropping 0.4 percent month-on-month and 1.4 per cent year-on-year as high unemployment kept consumers out of the shops.

While new car registrations in Germany rose 4.5 percent in October compared to the same month last year this was the result of new models and incentives drawing consumers into showrooms.

New car registrations fell 2 percent in the 10 months to the end of October, the country's car industry association said Friday.

Underscoring the fragile state of the German labour market, data released Wednesday showed the numbers out of work in seasonally adjusted terms climbing by 12,000 to 4.457 million in October.

Equally discouraging were the German factory orders released Thursday. The economics ministry said orders dropped by 0.2 percent in September, with a fall in domestic orders offsetting a pickup in foreign orders. Analysts had forecast a rise.

Economists are predicting that data to be released next week will show growth in the German economy easing to 0.3 percent in the third quarter, from 0.5 percent in the second.  Many think it could slow even further to 0.2 percent in the final quarter.

This week the International Monetary Fund said it was scaling back its 2004 and 2005 German growth forecasts to 1.9 percent in 2004 and 1.5 percent next year. In September the IMF forecast growth of 2.0 percent this year and 1.8 percent next.

However some analysts are warning that the country's growth rate will be just 1.3 percent for the full year. The German economy contracted by 0.1 percent last year.

DPA

Subject: German news
 

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