German economy poised for growth

28 January 2004

BERLIN – Germany’s economy is poised for substantial growth after three years of stagnation but high unemployment will not fall until 2005, Economics Minister Wolfgang Clement said Wednesday.

“We have crossed the valley of tears … and are finally in an upswing,” said Clement, speaking at a news briefing where he unveiled his already widely leaked projections for this year.

German GDP will rise between 1.5 percent and 2 percent in 2004, he said.

“Reservations of investors and consumers owing to the Iraq war have largely dissolved,” said Clement’s report.

He underlined that powerful monetary and fiscal impulses from the US and China were leading the world economy to recovery.

But admitted: “The upswing is coming slowly to Germany.”

Nevertheless, clear signs of revival are highly welcome following negative German GDP growth of minus 0.1 percent in 2003 and weak expansion of 0.2 percent in 2002.

Growth will continue to be export-led with sales of goods and services abroad to surge by 5.8 percent in 2004, compared with 1.1 percent growth in 2003.

Domestic demand will expand but only by a disappointing 1.2 percent, compared with a sickly 0.1 percent domestic demand growth in 2003, the report noted.

Weak German domestic demand has been a bane for economists over the past decade.

Germany’s jobless rate is expected to drop by 100,000 during 2004 but this will make only a small dent in overall unemployment figures.

The average jobless rate for 2004 is expected to be 10.3 percent with 4.28 million people unemployed after 10.5 percent last year.

“A real breakthrough (in unemployment) will not come about until 2005,” said Clement.

The generally upbeat 2004 projections come after German business confidence unexpectedly rose in January, as shown by the closely watched Ifo survey of 7,000 executives released Tuesday.

Leaders of Europe’s biggest economy shrugged off fears about the strong euro and Ifo index for western German business sentiment rose to 97.4 points in January, up from 96.9 points in December and 95.7 points in November.

Analysts had predicted the index, which is one of Europe’s key economic indicators, would level out in January.

“Business confidence has not been so good in a long time,” said a clearly upbeat Clement who noted the Ifo index was now at its highest rate of the past three years.

Banks are also betting on stronger growth with Commerzbank in Frankfurt predicting even better GDP growth than the government.

Commerzbank senior economist Peter Pietsch said Germany will post 2 percent GDP growth this year.

Analysts note that the German economy is generally only able to add serious numbers of new jobs when growth is 2 percent or higher.

DPA
Subject: German news