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German economy at standstill

Published on 14/01/2004

14 January 2004

FRANKFURT – Germany’s economy was virtually stagnant in 2003 for the third year in a row, economists polled in Frankfurt said Wednesday, a day ahead of the release of official data.

The economists said that it was only due to a strong expansion in the second half of 2003 that Germany managed to overcome a recession in the first six months and more or less reach the same level of economic performance as in 2002.

On Thursday, the Federal Statistics Office in Wiesbaden is to release gross domestic product (GDP) data for Europe’s largest economy. In 2002, German GDP posted a razor-thin 0.2 percent rise.

Economists polled by Deutsche Presse-Agentur dpa said they believed that the office will report either zero growth or at best a tiny 0.1 per cent rise in GDP for last year. But the economy is now growing again.

“The longest phase of stagnation in decades for the German economy is now over,” said Dresdner Bank chief economist Rolf Schneider. “Germany is now starting out on a recovery.”

Economists base this view on a 0.5 percent rise measured in the final quarter of 2003, a period marked by a strong rise in production of capital investment goods and in manufacturing.

For 2004, economists’ projections range from 1.5 to 2.0 percent growth for Germany, although they warn of risks to the economy.

“The high value of the euro is dampening exports to the United States and third countries,” commented DekaBank economist Andreas Scheuerle, pointing to recent foreign trade figures showing a drop in exports to markets outside the eurozone region.

A further factor of uncertainty remains private consumption, which remains weak despite the tax breaks now due to take effect under the Berlin government’s tax reforms.

“Households will remain cautious, because they do not yet know just how much the tax reform will really give them,” Scheuerle said.

 Meanwhile, the Federal Statistics Office reported Wednesday that German inflation in 2003 averaged 1.1 percent, the lowest figure since 1999.

The Wiesbaden-based office said that the rate compared favourably with the 1.4 percent inflation recorded in 2002 and was chiefly the result of clear price declines for technology products, such as a 20.4 percent decline in computers and other information systems, and to stable food prices.

Oil-products on the other hand rose 4.4 percent in 2003. Without that factor, German inflation would have been only 1.0 percent last year.

The office said that a so-called harmonized consumer price index, which is calculated for European purposes, also showed a 1.1 percent rise for 2003.



Subject: German news