German Economy Booms
March 12, 2007
Continued consumer spending and a backlog of manufacturing work will provide Europe's largest economy with an unexpectedly sunny outlook for 2007, the Kiel Institute (IfW) announced Monday.
The German economy started strong and shows no signs of slowing down this year, according to the IfW, one of the country's leading economic think tanks. The institute increased its 2007 prediction for Germany's gross domestic product (GDP) from 2.1 percent to 2.8 percent.
"Germany's upswing is continuing unabated,'' Joachim Scheide, the IfW's chief economist told Bloomberg News, adding that the first quarter "has been much better than expected.''
Uncertain start to 2007
Last year, economists fretted over an economic slowdown due to a 3-percent increase in the value-added tax (VAT), which came into effect Jan. 1. But consumer price data showed that German inflation stood at 1.6 percent in February, comfortably below the European Central Bank's ceiling of 2.0 percent.
Germany had a 2.7 percent growth rate last year, its highest since 2000. This was caused, in part, by a boom in foreign exports, which led companies to increase hiring and spending. Growth in the export market will slow in 2007 as the world economy cools, according to the report.
This year, high growth rates in business investment will fuel production growth. Tax laws will restrict how businesses claim depreciation next year, making it attractive to buy capital goods in 2007, the report said.
Germany's production levels also beat January forecasts, rising a sharp 1.9 percent from the previous month, according to seasonally adjusted figures released recently by the Economics Ministry.
Strong consumer spending will also play a role in the economic growth as the jobless rate decreases and private income grows, according to the report.
Unemployment continues to fall
Jobless rates in Germany decreased unexpectedly in February. Adjusted for the usual seasonal effects, the German jobless total was down sharply, falling by 79,000 to 3.897 million, with the adjusted jobless rate falling to 9.3 percent from 9.5 percent, data published by the German central bank in Frankfurt showed.
The growth rate is predicted to slow slightly next year. For 2008, the institute predicted a growth rate of 2.4 percent.