Hopes of a German economic recovery were dampened yesterday after the country's six leading economists halved their growth forecast for 2005, warning that Germany has a "fundamental growth problem".
The so-called "six wise men" said they now expect German economic growth of 0.7 per cent this year, down from their previous projection of 1.5 per cent. Berlin's budget deficit is also likely to be 3.4 per cent of gross domestic product (GDP) this year and 3.3 per cent next year, according to the six economists.
"Even though (reforms) were set in motion last year, a self-contained concept to overcome the growth misery is not discernible," the economists said in their spring report.
GDP growth in Germany from 2001 to 2004 averages out at just 0.6 per cent, their report pointed out, suggesting that the government's individual reforms were having only a weak, sometimes even counterproductive, effect.
"The global economic situation is less favourable than six months ago, mostly because of the rising price of oil and the euro exchange rate. That's all had its effect," said Dr Carsten-Patrick Meier, head of the economics division at the World Economics Institute at the University of Kiel. "But what we're noticing now is that mid- to long-term growth is weakening, showing that more reforms are necessary to corporate tax, health care and social welfare."
The German economy grew by 1.6 per cent last year and the government did its best yesterday not to rule out a similar performance this year.
"Despite the detailed criticism, the institutes back the reform path of the government," said Wolfgang Clement, the economics and labour minister.
There is already speculation, however, that Mr Clement will announce a downward correction of the government's own 1.6 per cent growth forecast on Friday.
The most positive news in the report was an anticipated gradual decline in unemployment. The jobless total shot up in January after reforms shunted hundreds of thousands of long-term welfare recipients onto the dole queues. Unemployment is likely to fall during the year from over 5 million to an average of 4.8 million, still higher than last year's average.
More critically, the economists forecast an average unemployment total of 4.5 million for the 2006 election year.
