Germany shears growth to 1%
Following re-election last year, the German government found itself in the middle of an economic disaster. It appeared that the budget deficit would exceed the limit of 3% of GDP set by the Maastricht criteria, prompting Brussels to start penalty procedures. It also became clear that the country's social welfare system was in deep trouble, so that contributions had to be increased, making work even more expensive. At the same time, the unemployment rate was continuing to inch upwards. There are around 250,000 more people looking for a job today than a year ago.
Economists believe that Germany needs more than 2% GDP growth to be able to create new jobs. The growth rate for 2002 was only 0.2%, compared with 0.6% in 2001. Forecasts for this year are better, although economic institutes have grown more sceptical, shying away from the optimism they expressed a year ago. In addition, a war in Iraq could deal a further blow to the weakened worldwide economy.
The government has lowered its forecast to 1% growth, a percentage that agrees with analysts' estimates. But there are signs of hope. Recent industrial production levels were far above expectations, and the IFO business climate index went up slightly after six months of a clear downturn. The new economy and labour minister, Wolfgang Clement, is obviously willing to carry through a high number of reforms in the labour market and the tax system. So far, feedback for his plans has been quite good. A special programme for medium-sized enterprises is also bound to create new jobs. And decisions to liberalise the healthcare system are on the way. Finally, income tax rates will be lowered in 2004 and 2005. All of which has prompted many economists to expect economic growth to gain momentum in the second half of the year.
Mirko Kaupat is the editor of Polen am Morgen.
Economists believe that Germany needs more than 2% GDP growth to be able to create new jobs. The growth rate for 2002 was only 0.2%, compared with 0.6% in 2001. Forecasts for this year are better, although economic institutes have grown more sceptical, shying away from the optimism they expressed a year ago. In addition, a war in Iraq could deal a further blow to the weakened worldwide economy.
The government has lowered its forecast to 1% growth, a percentage that agrees with analysts' estimates. But there are signs of hope. Recent industrial production levels were far above expectations, and the IFO business climate index went up slightly after six months of a clear downturn. The new economy and labour minister, Wolfgang Clement, is obviously willing to carry through a high number of reforms in the labour market and the tax system. So far, feedback for his plans has been quite good. A special programme for medium-sized enterprises is also bound to create new jobs. And decisions to liberalise the healthcare system are on the way. Finally, income tax rates will be lowered in 2004 and 2005. All of which has prompted many economists to expect economic growth to gain momentum in the second half of the year.
Mirko Kaupat is the editor of Polen am Morgen.
