Thursday, April 17, 2008

GERMANY'S ECONOMIC GROWTH EXPECTATIONS REDUCED

From FT (link):

"Germany’s economic growth will “lose momentum” this year because of high oil and food prices, the strong euro and the turmoil in the global financial markets, according to a projection by leading economic think-tanks. Europe’s largest economy grew by 2.5 per cent in 2007, a rate set to fall this year to only 1.8 per cent, says the joint forecast prepared for the German government by eight economic institutes, presented on Thursday in Berlin. The institutes had previously predicted growth of 2.2 per cent in 2008, but revised this downwards in the face of the “large number of negative shocks” in recent months. Their six-monthly forecast – one of the key barometers of Germany’s economic fortunes – predicts even lower growth next year of 1.4 per cent. “The negative international economic influences will become increasingly apparent [in 2008] and the economy’s expansion will lose momentum”, says the 80-page report, obtained by the Financial Times. Despite the economists’ cautious tone, their projection for 2008 is still higher than the government’s own forecast of 1.7 per cent. The report is also positive on the economy’s resilience to the fall-out from the financial markets crisis and the slowing US economy. “The German economy has become more robust in recent years, so the danger of a recession is lower,” the report says. Unemployment will continue to fall – although at a slower rate than in previous months – and in 2009 the average jobless figure will be 2.98m, below the symbolically important 3m mark for the first time since the early 1990s. In a reversal of the recent pattern, Germany’s exports are expected to weaken while domestic consumption – long the economy’s Achilles’ heel – will expand, the economists predict. Causes are, on the one hand, the strong euro and the unstable international economy, while on the other the rises in domestic employment and wage settlements. The high oil and food prices will lead to relatively high inflation, of 2.6 per cent this year and 1.8 per cent next year, the think-tanks predict. Inflation remains a concern throughout the eurozone, according to separate figures released on Wednesday. Price growth in the 15-country region grew by 3.6 per cent in March, according to revised figures released by the European Union’s statistics office on Wednesday, the highest annual inflation rate since measurements for the eurozone began in 1997."

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