Slowing Down
October 26, 2007
While Germany won't likely go through an economic growth spurt in 2008, it is expected to have a modest growth rate of 2.0 percent, according to new government forecasts released on Thursday, Oct. 25. While the country will experience modest growth next year, it will be slower than this year, the government said.
A slowdown in German exports is one cause for the predicted slowdown. Another factor is an expected global credit crunch, Germany's Economics and Technology Minister Michael Glos said Thursday. While the economy will have "less momentum," it will continue to expand, Glos said.
"The economic dynamic remains intact and stands on a solid basis," Glos said.
Ongoing global problems
The current crisis in the US housing market could negatively impact the German banking sector in the upcoming year, although the fallout remains unclear, Glos said. The export sector is also expected to slow as the global economy loses steam and the euro continues its strength relative to the dollar.
Glos said he expects growth to shift from exports to the domestic economy.
The government's economic projections followed warnings last week from Germany's leading economic institutes that growth was expected to be slower in the upcoming year. The institutes predict a growth rate of 2.2 percent in 2008 and called on Chancellor Angela Merkel to press ahead with economic reforms.
Business confidence continues to drop
While economists also expect an economic slowdown, the government predicted that the German economy will continue doing well for the rest of the year. The government increased its growth estimates for 2007 from the previous 2.3 percent to 2.4 percent.
On Thursday, a closely-watched business climate index showed that business confidence dropped in October. But the Munich-based economic research institute Ifo said the drop from 104.2 points in September to 103.9 points in October was not as big as expected.
"The results indicate that the upswing will continue but at a slower pace," an Ifo statement quoted president Hans-Werner Sinn as saying.
Consumer spending could provide boost
The Ifo survey showed that of the 7,000 companies asked about their expectations for the next six months, manufacturers were worried, but other sectors seemed positive about their outlook. The retail sector was particularly positive.
This suggests that "German consumers might have started to open their wallets amid a continuing improvement in employment and slightly more generous pay deals," Bank of American analyst Gilles Moec told the AFP news agency.