Germany comes out of recession

Germany comes out of recession

The gross domestic product (GDP) of Europe's largest economy grew by 0.7 per cent during July-September, following a 0.4 per cent growth in the previous quarter, according to figures published on Friday by the Federal Statistics Office. But the economic growth fell short of 0.8 per cent forecast for the last quarter, indicating how tentative the signs of recovery remain.

The dimension of Germany's economic crisis and the impact of the global recession on the economy are becoming more evident now, the Statistics Office said. Between July and September this year, the GDP dropped by 4.7 per cent compared to the same period in 2008, even though the decline was not as strong as the 7 per cent dip registered in the second quarter.

Economists were unanimous in their view that the German economy's recovery much earlier than expected was the result of the government's massive economic recovery programme and they wondered whether it could be sustained once the state support is phased out.

The German economy, which is heavily dependent on exports, was hit by the global economic and financial crisis because of a sharp decline in its exports and it was in this area the new impulse for growth comes.

The Statistics Office said a surge in exports and new investments in capital goods and construction significantly contributed to the economic turn-around. In contrast, public consumption continued to decline and put a break on further growth.

Meanwhile, a group of top-level economic experts warned that Germany's economic recovery is still very "weak and fragile" and the economy still finds itself in a "deep valley." The so-called team of "five wise men" advising the German government on financial and economic policy matters, forecast in their report presented to Chancellor Angela Merkel that the economy would shrink by 5 per cent this year, but the outlook for a recovery next year looked quite positive.

The team of five senior economic professors said they expected the economy to grow by 1.6 per cent next year, slightly more optimistic than the German government's forecast of 1.2 per cent growth.

In spite of a "slight recovery" anticipated for the next year, "the economy finds itself in a deep valley and there is no reason for any euphoria," an expert said, adding "this will severely curtail the government's financial room for manoeuvre."

The experts shared the German government's view that the situation in the labour market will continue to deteriorate in the coming year and the anticipated economic recovery will have little impact on creating new jobs The experts expect the number of jobless to rise to 4 million in 2010 from 3.4 million this year. The government expects 4.1 million unemployed next year.

They sharply criticised the new conservative-liberal government's plans to finance income tax and corporate tax reduction by taking new credits. The new conservative-liberal government's "promises in their coalition agreement to reduce taxes without a solid financial basis is not trustworthy", they said.

"Even when the new government doesn't want to admit, a consolidation of the state budget will not be possible without deep cuts in public spending or by increasing taxes and other social contributions," they warned.

Receiving the report, from the group's chairman Wolfgang Franz at the chancellery, Merkel looked unimpressed by their criticism and said "we are united in our determination to come out of the crisis with greater strength". She also told the professors that she hoped their "gloomy predictions will not become a reality."