World economy

[Hinrich Kuhls <kls@xxxxxxxxxxxxxx>]

*-*-*-* Tuesday July 10, 11:04 am Eastern Time

German Growth Prediction Is Slashed

Leading Economic Institute Slashes Its Growth Forecast for Germany

By HANS GREIMEL AP Business Writer

FRANKFURT, Germany (AP) -- Shaking confidence in Europe's ability to stave
off recession, a leading economic institute slashed its growth forecast on
Tuesday for Germany, predicting that the continent's biggest economy will
expand at only 1 percent this year.

The Berlin-based DIW research group had earlier predicted that the German
economy would grow by 2.1 percent this year and the downgrade comes after
several other institutes similarly cut their estimates.

Among those revisions was one by the International Monetary Fund, which
abandoned its forecast of 1.9 percent growth on Monday, saying the German
economy will likely grow just 1.25 percent.

Last year, the German economy grew 3 percent.

German Finance Minister Hans Eichel downplayed the figures, saying the
German economy has slowed but the outlook is better.

"Growth has weakened but the trend is upward and we see a recovery in the
second half,'' Eichel said after a meeting of European Union finance
ministers in Brussels.

The German government is sticking with its official forecast of 2 percent
growth in 2001, Eichel said.

The recent rash of downgrades spells more trouble for the German
government, which has been counting on sturdy growth to help it cut
unemployment and government borrowing.

But they are also bad news for the European economy as a whole, because
Germany accounts for nearly a third of the economic output of the 12
European Union countries using the euro common currency.

DIW said Germany's export-driven economy was being hit hard by the slumps
in Japan and the United States, where demand for German goods was shrinking.

The euro-zone economy was also being hammered by high oil prices and higher
food prices caused by the outbreak of livestock diseases earlier this year,
the institute reported.

On an upbeat note in line with most other forecasts, however, DIW said the
economy would pick up next year helped in part by an expected rebound in
the U.S. economy.

Germany's Ifo economic institute, which recently cut its German economic
growth forecast to 1.2 percent from 2.1 percent, said Tuesday that the
economy will even start to improve this autumn. It forecast a growth rate
of 2.2 percent next year.

To help jump-start Germany's recovery, DIW recommended lowering European
interest rates to make it cheaper for businesses to borrow money and fund
expansion.

The European Central Bank last cut interest rates May 10 but has so far
resisted calls for another cut, saying lower interest rates could fan
inflation. The ECB's tough stance contrasts with that of the U.S. Federal
Reserve, which has cut rates six times this year in an effort to boost the
sagging U.S. economy.
http://biz.yahoo.com/apf/010710/germany_economy_2.html
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related links:
DIW Berlin (German Institute for Economic Research): http://www.diw.de
DIW's English starting page: http://www.diw.de/english/
DIW's press release July 10th:
http://www.diw.de/deutsch/aktuelles/presse/aktuell/
and
DIW-Wochenbericht (Weekly Report - a publication in German language)
Tendenzen der Wirtschaftsentwicklung 2001/2002 dated July 12th 2001:
http://www.diw.de/deutsch/publikationen/wochenberichte/docs/01-28.pdf
with comprehensive data and graphs related to the current slowdown of the
world economy.

hk