Germany hikes growth forecasts sharply

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Germany hikes growth forecasts sharply

Germany is again Europe's growth engine, the country's economy minister declared Thursday, as Berlin more than doubled its forecast for output this year and predicted a steady expansion in 2011.


Europe's top economy is poised to grow by 3.4 percent in 2010 before slowing next year to 1.8 percent, Rainer Brüderle told reporters in Berlin.

This represented a major revision from the government's previous forecasts made in April, of 1.4 percent and 1.6 percent respectively, and brought it more into line with other major economic institutions.

"Germany is again the growth engine of Europe. After a period in the fast lane, our economy is now in the overtaking lane," Brüderle said.

And he added that after a strong impulse from exports, domestic demand would contribute much more to growth next year. "The recovery is standing solidly on two legs," said the minister.

"I assume that we will have growth of around two percent for the next five years or so," he predicted.

Germany, the world's second-biggest exporter after China, has come under fire for relying too heavily on export-led growth at the expense of promoting the domestic economy. And as a major exporter, Germany suffered more than most during the downturn, as global demand for its goods dropped off sharply.

In 2009, it suffered its worst recession in six decades, with output contracting by 4.7 percent.

But the economy has bounced back impressively, with exports booming, unemployment at a relatively low level and companies reporting solid profits.

German gross domestic product (GDP) grew 2.2 percent quarter-on-quarter in the period April to June, the fastest expansion since reunification in 1990.

"Worldwide trade expanded this year at a faster rate than we expected. Demand for German goods is especially strong in rapidly expanding developing countries such as India and China," Brüderle said.

Buoyed by the strong recovery, the country's stock exchange has gained 10 percent since the beginning of the year.

The bullish forecast will also help the unemployment situation in Germany, Brüderle said, with jobless lines expected to shrink by 190,000 to 3.2 million this year and move below the crucial three-million mark next year.

"There are currently more people employed now than during or before the crisis. That is good news," the minister said.

Also good news for Germany was a separate finance ministry report showing the country's deficit would be four percent of GDP this year, down from 4.5 percent predicted a few months ago.

In a bid to shrink its deficit mountain, Chancellor Angela Merkel's government, in common with others in Europe, has launched an austerity drive aimed at cutting government expenditure by tens of billions of euros.

Brüderle confirmed that this would remain in place despite the sunnier economic climate.



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