Economy growing faster than expected

Economy growing faster than expected
Photo: DPA
The German economy will expand faster than expected this year, spurring the government on Thursday to raise its growth forecast for Europe's economic powerhouse.

Germany will grow by 2.6 percent in 2011, Economy Minister Rainer Brüderle told reporters, hiking a previous forecast of 2.3 percent made in January.

The growth rate will slow slightly next year, coming in at 1.8 percent, Brüderle added, leaving Berlin’s earlier forecast unchanged.

“The recovery in Germany is on firm footing,” Brüderle said.

Germany, the world’s second largest exporter after China, suffered a crippling recession in 2009 with its economy contracting by nearly five percent.

But Europe’s biggest economy has since staged a storming comeback and last year registered its strongest performance since the country was reunified in 1990.

The dynamic economy is also helping to reduce unemployment.

Average unemployment is projected to be 2.9 million in 2011 and 2.7 million in 2012, according to the forecasts – well under the politically sensitive three-million mark.

“German citizens are benefiting from the recovery via higher incomes and more jobs,” the minister said.

The new growth projections put Germany on a much faster growth path than its European neighbours. France is poised to grow by 2.0 percent, Paris estimates, whereas Britain expects 1.7 percent growth this year.

Stronger growth has also helped Germany reduce its public deficit faster than it had planned, as other eurozone countries grapple with ballooning deficits and a debt crisis.

The deficit will creep under the European Union limit of three percent of gross domestic product this year, Berlin announced on Wednesday.

Brüderle also drew attention to the balanced nature of the recovery with Germany becoming less reliant on exports to drive its economic motor. This would help Europe’s powerful juggernaut overcome obstacles on the road ahead, he said.

“Domestic demand is stronger. This makes our economy on the whole more resistant. Given the current trend in commodity prices, the catastrophe in Japan and the ongoing debt crisis in the euro area, this will pay off.

“Our traditional weakness when it comes to domestic demand has been overcome … given the crisis that is behind us, that is a remarkable and pleasing result,” he said.

However, despite the bullish forecasts not all is plain sailing, with gathering clouds on the horizon.

Business and investor confidence has dipped in recent months, amid concerns over the effects of the devastating Japanese earthquake and tsunami and the ongoing debt crisis in the euro area. And rising inflation and interest rates also threaten to take a toll on the German economic recovery, analysts say.

Last week, the European Central Bank raised interest rates for the first time since mid-2008 in a bid to contain inflation. However, ECB President Jean-Claude Trichet said that it was not the start of a series of hikes.

AFP/The Local/mry

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