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German economy sends out mixed signals

11 March 2004 

WIESBADEN – Inflation in Europe’s biggest economy receded to 0.9 percent in February, Germany’s federal statisticians confirmed Thursday amid figures sending out conflicting signals on the prospects for a pickup in the country’s economy.

The year-on-year figure back in January had been 1.2 percent. The February tally, with figures from all states, was in line with the earlier provisional figures based on just a handful of states.

The good news about consumer prices in Germany, however, follow the release of a raft of painting a very mixed picture of the nation’s economy as the first quarter draws to a close raising fresh doubts about the upswing in the country.

Once again, it is the export sector which is doing the heavy carrying in fuelling any hopes for a German upturn, with January figures showing surprisingly strong growth.

But once again, a sluggish domestic sector is casting doubts about when, and how strongly, the German economic upswing will kick in, in turn raising worrying questions for the government of Chancellor Gerhard Schroeder.

So far, the tax cuts which took effect in January, and on which Berlin is pinning its hopes for recovery, have failed to provide a noticeable boost. Germans are still holding back on consumption.

Becoming among the first to hedge its bets about the economy is the influential Berlin-based DIW economic research institute, which now sees the German economy rising just 0.1 per cent in the first quarter – well down from its February estimate of 0.4 per cent.

But the DIW said it was still sticking with its 1.4 per cent growth estimate for all of 2004 – in other words, the upturn is coming, only more slowly than expected.

The institute said that so far, the Schroeder government’s tax cuts had yet to provide any tangible boost to an economy still struggling to wake up from three years of virtual stagnation.

This week the Federal Statistics Office reported a strong 4.4 percent rise in exports year-on-year in January. The January exports were an eye-popping 6.0 percent over those in December.

The rise, coming atop a record-setting year for exports in 2003, showed that the German export sector was still managing to perform well despite the growing strength of the euro which makes their products more expensive outside the 12-member eurozone.

Further mixed signals came from latest data on overall industrial output in January, with the Economics Ministry reporting that a severe drop in building activity production falling by 0.1 percent from December levels.

However, while construction remained a problem, the more important manufacturing sector saw a rise of 0.7 percent from December to January. And in a sign of recovery, output in the two-month period of December-January was 0.5 percent higher than in the preceding October-November time frame.

But aside from those macroeconomic figures, reports from specific segments of the economy have been anything but upbeat.

For example, the electronics industry association ZVEI in Frankfurt said it expected a maximum of 2 percent growth this year, after 2003 was a year of stagnation.

Rounding out the picture in mid-March was more sobering news from the retail sector, perhaps the hardest-hit area of the economy after construction.

The German Retailers Federation HDE in Dusseldorf had a bad news- bad news report about the sector’s prospects – not only did the retail industry lose a post-war record high 50,000 jobs in 2003, but further job losses could be expected this year.

HDE president Hermann Franzen said that after three years of decline, the comparatively good news for the retail sector in 2004 is that business is now levelling off. Next year, the retail industry can show some growth – maybe.


Subject: German news