German economy slows in final quarter of 2005

14th February 2006, Comments 0 comments

14 February 2006, BERLIN - Germany's economy failed to grow in the final quarter of last year but analysts shrugged off the data released Tuesday and boosted growth projections for 2006.

14 February 2006

BERLIN - Germany's economy failed to grow in the final quarter of last year but analysts shrugged off the data released Tuesday and boosted growth projections for 2006.

Europe's biggest economy posted zero GDP growth in the 4th quarter over the previous quarter, said the Federal Statistics Office in a statement.

Overall, the economy grew by 0.9 per cent last year, said the statement.

Investment by German industry was up in the final quarter but this was offset by declining private and public spending and slipping exports, said the Statistics Office.

But industry groups and economists insisted the data did not indicate any downturn.

The German Chamber of Industry and Trade responded by raising its growth projections for this year to 2 per cent from its previous target of 1.5 per cent.

Other leading economic institutes are projecting 1.5 to 1.7 per cent growth with only Economics Minister Michael Glos warily sticking to his prediction of 1.4 per cent GDP expansion.

Deutsche Bank, Germany's biggest bank, said: "A clear upswing is expected in the German economy for the current year."

The DekaBank agreed, saying: "The mood and the prospects are excellent."

Commerzbank cautioned, however, that domestic consumption has been stagnating in Germany since 2002 and until this is turned around there can be no sustainable economic recovery.

"Germany will reach 1.5 per cent growth this year," said Commerzbank.

Growth for 2006 is expected to be boosted by two one-off factors.

Germany hosts the football world cup in June and July and spending by the 3.2 million fans due to attend the games is expected to add 0.2 percentage points to this year's GDP growth.

A further boost is seen at the end of the year when Germans are expected to make big purchases, such as cars, to avoid the 2007 increase of value added tax (VAT) to 19 per cent from the current 16 per cent.

But analysts say growth in 2007 is expected to be far lower - between 0.2 per cent and 0.4 per cent - in part due to the higher VAT which will initially cut consumer spending.

"The German economic cycle is reaching its peak this year," said Ulrich Kater, chief economist of DekaBank, adding: "Only fundamental reforms can change this."

So far Chancellor Angela Merkel has declined to make any truly bold economic liberalization steps - but this may change after regional elections in March.

Meanwhile, another key economic indicator released Tuesday showed German investor confidence fell slightly in Europe's biggest economy.

Drawn up by the Mannheim-based ZEW institute, the indicator, which gauges sentiment among Germany's investment analysts, fell to 69.8 points for February, down from 71 points in January.

The February figure, however, is still far above the score of 61.6 points in December.

"This is stabilization at a high level," said a ZEW statement.

Lowers orders for German goods probably impacted on the February index rating, said the ZEW, adding that the lower value of the euro against the dollar and the robust global economy were good news for German exporters.

The ZEW survey acts as a curtain raiser to the release later this month of the more broadly based ifo business confidence report.

Doubts were raised over the ZEW's reliability in a report by Commerzbank.

"ZEW expectations have not proven to be a historically accurate indicator," said Commerzbank.


Subject: German news

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