German Economy Cheers Up

The German Finance Ministry has provided a glimmer of hope for the sluggish economy of the country in its latest monthly report.

In a cautiously worded document, the ministry has indicated a quick economic upswing that would gather momentum as the year progresses. It also prognosticates a turn for the better on the rather dismal unemployment front.

The hopeful words are like music to a beleaguered German economy that hit a record eight-year low last year and provoked the European Commission to issue it an unprecedented "warning letter" to get its fiscal position in order.

The latest blow to the economy came in the form of unemployment levels crossing the dreaded 4 million mark.

Hopes of a turnabout

Financial experts across the board now agree that with gradual economic revival in America, things are definitely looking good on the world economic front.

And experts in Germany are in agreement that falling energy prices, interest rates and a more optimistic mood among German industries all point to an upturn in the economy. The report of the Finance Ministry also emphasises that all these factors in turn would lead to a revival of investor confidence.

Data released by the Ministry also showed that German industrial output rose by an unexpectedly strong 1.9 percent in December thanks to a surge in the consumer goods section and the construction industry.

The Finance Ministry now strongly predicts that the German economy would grow by 0,75 percent in the year 2002 as opposed to a growth of just 0,6 percent last year.

For the first time in months the European Commission also spoke of an economic improvement in the Euro zone last December after the gradual recovery of US business in the wake of the September 11 attacks.

A note of caution

But economists from the German institute for economic research (DIW) and the HWWA institute are more circumspect.

They speak of a marked economic change in Germany in the second quarter triggered by rising investments and then later by exports.

In an interview with the Financial Times, Germany, Gustav Horn, Chief economist at the DIW warned that if economic growth in America didn't continue at its current strong rate, the German economy could face stagnation by mid 2002, if not recession.

And if the much-needed economic upswing in Germany only surfaced in the third quarter, then Germany should reckon with a yearly growth rate of just 0,1 percent he says.

The DIW analyses that the rate at which the robust economic growth of America affects the economy of Europe has no doubt quickened since the mid 1990s.

But the DIW sees the "deeply embedded uncertainty" after the terrorist attacks in the US on September 11 as the reason why economic recovery in the Euro zone as taken longer than usual.