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Brüderle raises 2010 growth forecast

AFP/The Local · 27 Jan 2010, 13:31

Published: 27 Jan 2010 13:31 GMT+01:00

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Brüderle said he was "cautiously optimistic" for the future economic prospects of Germany, which recently lost its crown as the world's top exporter to China, but warned that uncertainty was still high.

"We have got past the trough, but the way back up will be slow and painful," the minister added.

Last year, Europe's largest economy suffered its worst slump since World War II, with a contraction in output of five percent. The country is also saddled with a mountain of debt and expects a record €85.8 billion ($120.7 billion) in new borrowing this year.

But forward-looking indicators recently have pointed to brighter times ahead, with the closely watched Ifo survey of business confidence rising for 10 consecutive months.

Exports, the backbone of the German economy, were expected to grow by 5.1 percent this year, according to the new projections, compared to a crisis-driven contraction of 14.7 percent in 2009. However, Brüderle cautioned that "the pre-crisis levels will not be reached this year."

Unemployment was not expected to rise above the politically sensitive four million mark, Brüderle said, estimating an average of 3.77 million for 2010.

Despite the hike in the growth projection, Berlin is still more pessimistic than either the International Monetary Fund or the German central bank, which have forecast 1.5 percent and 1.6 percent respectively.

Jennifer McKeown, senior European economist at Capital Economics, was even more bullish, predicting: "With exports again performing much better than elsewhere, we see the German economy expanding by a solid two percent."

Analysts at Germany's biggest private bank, Deutsche Bank, expect even stronger growth of 2.1 percent.

Story continues below…

The new centre-right coalition in Berlin - Chancellor Angela Merkel's conservative Christian Democrats and the pro-business Free Democrats - has vowed to implement deep tax cuts in a bid to boost consumer spending.

But weighed down by the growing debt mountain, the tax cuts have proved politically tricky to push through, with Merkel's own finance minister warning that the country will have to tighten its belt in 2011.

After much wrangling, a first €8.5-billion tax relief package eventually cleared its final legislative hurdle in late December. The coalition has promised a total of €24 billion by 2013.

AFP/The Local (news@thelocal.de)

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