Germany gloomy on employment

Germany's six leading economic institutes issued a gloomy forecast yesterday, predicting rising unemployment amid growth of less than 1 per cent this year and a moderate upswing in 1997.

In their spring report, the institutes predict that growth will average 0.75 per cent this year, in line with the government's latest projections, but far below the 1.5 per cent forecast in January. The economic ministry's own "five wise men" are more pessimistic still, projecting yesterday a 0.5 per cent growth rate for 1996.

Next year, the economy is set to return to a more healthy state, though the institutes differ widely in their calculations. Two of them project growth of less than 1.5 per cent, while the others are confident that growth will attain 2.5 per cent.

All agree, however, that exports, projected to expand by 3.5 per cent this year, will be the engine of recovery, while private consumption and investments will remain in the doldrums. The construction industry alone is expected to shrink 2.5 per cent. Overall investment is projected to fall by 1.5 per cent.

The institutes are especially pessimistic about the former East Germany, where they say inflated wages and poor competitiveness are preventing expansion.

Growth in the east, which accounts for about 10 per cent of the German economy, is expected to fall to 3 per cent this year, from 5.6 per cent in 1995. By 1997, even the unspectacular western upswing could outstrip growth in the east.

Unemployment in both halves of the country is set to climb, with an increase of 1.5 per cent to 15.5 per cent in the east, and an overall jobless rate in excess of 10 per cent across the country. The institutes foresee only a tiny drop in the national unemployment rate next year.

Because of the poor performance of the economy, the institutes say that Germany and France will "probably fail to fulfil all the criteria" for European monetary union. Contrary to the Bundesbank, the institutes call on the government to show flexibility in interpreting the criteria, and cite the relevant loosely-worded paragraphs in the Maastricht Treaty.

Chancellor Helmut Kohl's government, however, is committed to the strictest interpretation of the rules demanding member states should limit their public sector deficit to 3 per cent of GDP, and government debt to 60 per cent.

Last week, Mr Kohl launched an austerity programme designed to attain these targets, by cutting social expenditure and stimulating growth through fiscal means. The institutes, however, are sceptical about the programme. "There is a grave danger," they warn, "that through its cyclical measures the state will exacerbate the economic downturn".

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