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German economyon track for pickup

Published on 06/01/2004

6 January 2004

BERLIN – Germany’s economy is set for a modest upturn of 1.4 percent annual growth both this year and in 2005 with Berlin expected to return to European Union stability pact rules as well next year, the DIW economic research institute said Tuesday.

The influential Berlin-based DIW said the German government this year would run up a deficit of EUR 73 billion or 3.4 percent of gross domestic product (GDP) this year.

But in 2005, Berlin will manage to lower the deficit to the EU’s three percent limit, the DIW said.

The 1.4 percent GDP growth projection by the DIW is at the lower end of the spectrum of predictions by Germany’s major economic research units.

The DIW said a “sickly domestic economy” would continue to hamper the country’s growth prospects, and that any tangible relief for the job market would only come in 2005.

DIW president Klaus Zimmermann said this year’s expected growth was based chiefly on the calendar year 2004 having more working days than last year. Without this effect, the GDP rise this year would be only 0.8 percent, by DIW reckoning.

Unemployment in 2004 is foreseen averaging 4.3 million, with the 2005 figure expected then to be an average 125,000 lower, the institute predicted.

The DIW said that the economy’s weak point continued to be private consumption.

The legislation passed in late 2003 to help cut taxes was still not enough to give a decisive boost to private spending, with the institute pointing to declining employment, extremely low wage rises and households increasing their savings.

Subject: German news