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Germany economists reduce growth forecast for next year


Germany economists reduce growth forecast for next year


Germany’s six leading economic think tanks say economic growth in Europe’s largest economy will barely improve in 2006 after slowing significantly this year.

In the bi-annual report they have just published, the institutes concluded that consumer spending will pick up less than they expected earlier amid persistent joblessness. Roland Doehrn, one of the economists who contributed to the report, said: “The German business cycle still depends very much on foreign impetus. Even small disruptions from abroad can push the German economy back towards stagnation, because the domestic economy’s dynamic won’t be very pronounced this year.” The institutes forecast GDP growth of 0.8% this year and just 1.2% next year. The prediction for unemployment is an average of 11.2% this year, falling to 10.9% next year and the deficit should shrink from 3.5% tp 3.1%. The institutes said that a decline in building investment has continued and their surveys suggest that overall hiring may be slow to pick up even as business sentiment improves. One encouraging sign the think tanks spotted was an upward trend in investment in machinery and equipment by German companies. But consumption by individuals has remained especially weak, as the rise in energy prices further depressed household income and the domestic economy has more or less stagnated during the last year. With German growth driven entirely by exports, the prediction is for an improvement from the depreciation of the euro against the dollar. The institutes based their forecast on the assumption oil prices will be around $60 a barrel next year, the euro will average $1.20 and the European Central Bank will raise interest rates by 0.5% next year.
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