Germans 'face worst recession since war'

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The Independent Online
THE GERMAN Economics Minister, Gunter Rexrodt, warned yesterday that Germany would have to concentrate all its resources to avoid falling into 'the worst recession since the war'.

At the moment, he said, Germany was facing a 'cyclical downturn'. He was presenting the government's annual economic forecast, which suggested that the standard of living in western Germany will drop for the first time in years. Prices are expected to rise by 3.5 per cent but wages by only about 3 per cent.

The western German economy is expected to shrink by up to 1 per cent this year, with the east growing by 5 to 7 per cent. Unemployment in western Germany - 5.8 per cent last year - is expected to rise to about 7.5 per cent. That is nearly the same as western German unemployment in 1989 - and 3 percentage points less than the total in the UK.

Unemployment in eastern Germany, already high, is likely to continue growing, as it has done throughout Eastern Europe. The predicted figure for 1993 is about 15 or 16 per cent.

Mr Rexrodt's report to parliament talked of the 'difficult test' facing the German economy. But it spoke too of a possible turnaround by the end of this year.

The opposition parties argued yesterday that such predictions were much too optimistic. Yesterday's report talked of a planned increase in exports, which the government hopes will rise by about 2 per cent.

Mr Rexrodt welcomed the recent agreement with public sector unions to bring in a pay deal for 1993 of only 3 per cent, less than the rate of inflation, as part of the belt-tightening exercise that the government is keen to introduce to help recovery in the east.

Most western Germans are shocked by seeing their economy shrink for the first time in many years. Many eastern Germans, in contrast, are dismayed that the apparently stable economy within which they had learnt to live and work in the past 40 years crumbled so completely when it was abruptly exposed to the chill winds of the outside world.

Germany's current account deficit rose from DM600m ( pounds 250m) to DM5bn between November and December, faster than analysts expected. The current account deficit in 1992 as a whole was DM39.2bn.

Wages and salaries rose an average 5.6 per cent in the former West Germany in 1992 after a rise of 6.5 per cent in 1991 and 4.9 per cent in 1990. Wages in the former East Germany rose 25.9 per cent in 1992 from 1991.