Bundesbank dampens recovery hopes

17 May 2004

FRANKFURT – Amid an ongoing slump in domestic consumer demand, Germany’s economy has yet to see a self-sustaining recovery, with only the foreign trade sector continuing to contribute to growth, the central bank said Monday.

In its monthly report for May, the Bundesbank said growth in the first quarter – reported by authorities last week at 0.4 percent above the final quarter of 2003 – was only fuelled by foreign trade. Domestic demand is continuing to stagnate.

“Characteristic of the current economic situation in Germany is the stubborn restraint in consumption by private households, one which also does not look like dissolving in the near term,” the Bundesbank said.

The weak consumption comes amid a worsening situation on the job market and only slight growth in incomes. At the same time, households were adding to their savings, something which had not happened in previously comparable economic cycles.

The Bundesbank called for further structural reforms in the economy in order to boost trust in the management of Germany’s demographic and fiscal challenges.

It also noted the worsening public financial situation in Germany, worsening the chances for the country this year to meet the European Union’s monetary stability criterium to limit the budget deficit to three per cent of gross domestic product.

Meanwhile in Wiesbaden, the Federal Statistics Office added mixed news about the economic situation, reporting that in March the country’s manufacturing and mining sector’s turnover, at EUR 126.8 billion, was a strong 9.1 percent higher than in March 2003.

This growth resulted from year-on-year rises of 12.7 percent for foreign business turnover and of 6.9 percent in the domestic economy, the Destatis office reported.

But the growth came while employment declined. Payrolls in manufacturing and mining in March stood at 6.01 million, down 2.3 percent from March 2003, the office said.

These workers put in 5.4 percent more working hours in March this year, while their wages and salaries increased by 2.1 percent year- on-year, it said.

DPA

Subject: German news