Slowdown in France and Germany raises G7 stakes

ALARMING SIGNS of weakness in Europe's two biggest economies have raised the stakes at today's Group of Seven meeting in Bonn. Wim Duisenberg, president of the European Central Bank, will come under fresh pressure to avert the danger of recession by cutting Euroland interest rates.

Figures yesterday showed a shock fall in German gross domestic product at the end of 1998, the first fall in national output for three years. Separately, business confidence in Germany continued to deteriorate in January, the eighth successive month of decline. In addition manufacturing output in France fell sharply in December rather than rebounding as expected.

Analysts said the disappointing news had improved the chance that the ECB would cut rates in March. In the eyes of the financial markets, it is the weakness of the euro since its launch 50 days ago that explains the European Central Bank's reluctance so far to reduce borrowing costs.

"These figures explain Oskar Lafontaine's pressure on the ECB," said Mark Cliffe, European economist at ING Barings. But he added that the high-profile campaign for rate cuts by the German finance minister had probably been counter-productive.

However, today's G7 meeting will be the first time that Mr Duisenberg will have had to face all his critics.

Gordon Brown ,the Chancellor of the Exchequer, will today back calls from US Treasury Secretary Robert Rubin for the Europeans to cut interest rates to boost demand.

Mr Rubin said earlier in the week that the disparities in growth between the United States and its main trading partners was leading to an unsustainable situation.

The Chancellor and the Governor of the Bank of England, Eddie George, will point to the speed with which the UK has cut interest rates.

Treasury officials said yesterday that all countries needed to play their part. "We do want demand-led growth across the world to ensure that the burden of absorbing exports from crisis economies is evenly shared."

Yesterday's figures showed that German GDP fell by 0.4 per cent in the final quarter of 1998, taking GDP growth for the year as a whole to 2.6 per cent from the previous year's 2.3 per cent. A sharp fall in exports, down 3.4 per cent in the quarter, accounted for much of the weakness, but investment and government spending also declined.

The latest index of the business climate in Germany from Ifo, the economic research institute, declined to 91.1 in January from 91.4 in December, while the expectations index fell to 96.1 from 96.5. The continuing fall came as a big disappointment as the closely scrutinised indicator had been expected to stabilise.

In France, manufacturing output fell 0.7 per cent in December after a 0.1 per cent drop in November. The year-on-year growth in production slowed markedly to just 1.2 per cent.

Don Smith, an economist at HSBC Securities, said: "This signals that an underlying deterioration in French industrial activity is now taking hold."

At today's meeting the Chancellor is expected broadly to support proposals from Hans Tietmeyer, the Bundesbank President, for a new liaison committee linking central bank governments which could act as an early warning system to ensure that potential problems in the world economy and financial system are spotted early.

Mr Tietmeyer has stopped short of calling for a new international body and is proposing instead a new forum with a small secretariat, which would co-ordinate the work of existing regulatory bodies and central banks around the world.

The Chancellor is particularly keen that the various codes of practice on transparency and standards of compliance and prudential supervision being drafted in response to the Asian and Russian crises are implemented rapidly.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence