Germany Adjusts Growth Forecast

A possible slowdown in 2005 will make it a tall order for Berlin to reach its objective of finally meeting EU budget deficit criteria after three years of staying above the three percent deficit ceiling as defined by the bloc’s Stability and Growth Pact.

According to Clement, Germany’s gross domestic product will rise by 1.8 percent in 2004. The government thus adjusted its projections in spring of this year when it spoke about a 1.5 percent increase only. For next year, Clement forecast a 1.7 percent growth only, thus shattering hopes that decent growth rates could soon help to reduce record-high unemployment in the country.

"The alarmingly high crude oil price remains a major risk factor in our forecast," Clement said. "A price of over $50 (€39.1) per barrel is bound to have a severe impact on cyclical developments in the months to come. However, I see no reason whatsoever why crude should become even more expensive in 2005."

The government’s forecasts are more optimistic than those of the country’s leading economic research institutes. There’s agreement that a slightly higher growth rate this year has little do with an increase in demand on the domestic market, but much with a larger number of working days in 2004.

No drastic savings measures

German Finance Minister Hans Eichel rejected media reports according to which the expected meagre growth rates would necessitate more drastic savings measures. He rejected as pure speculation reports that the government was considering slashing benefits for commuters, doing away with ecotax exemptions for big companies and reducing financial transfers to the country’s new eastern federal states in a bid to meet European Union deficit rules.

"We’ll have to wait for the tax revenue estimates for 2004," Eichel (photo) said. "Only then will be in a position to agree on the necessary steps towards budget consolidation, if such measures are required at all. Until then, it’s absolutely pointless to speculate about adjustments, and I’m not going to take part in this useless debate."

Eichel pressures health insurers

But to prevent Germany from violating exceeding EU deficit ceilings for the fourth consecutive time in 2005, Eichel is putting pressure on statutory health insurers to spent more money on debt servicing instead of using resources to reduce premiums.

But the ruling Social Democrats' social affairs spokesman, Ludwig Stiegler, said his party would not support such a policy.

"It’s been our aim to slash statutory health care contributions for both companies and those insured," he said. "We view this as a precondition for more positive cyclical developments and increased consumer spending. Maybe some ministers in the cabinet are nurturing ideas to put all the money saved into servicing debts rather than lowering premiums, he says, but they don’t have our backing in this.”

Stiegler fears the wrath of those contributing to the statutory health fund. They have been promised lower premiums in return for a drastic overhaul of the health system which sees people pay more for doctor’s visits and medication.