Statistics point to German recovery

WESTERN German GDP grew strongly in the first quarter of this year, indicating that recovery from recession is well under way. Seasonally adjusted unemployment growth also continued to slow.

Chancellor Helmut Kohl's government, which faces a general election in the autumn, said the good start meant western Germany's economy might grow more than the forecast 1 per cent this year. But independent economists cautioned that the recovery remained weak and Germany was a long way from recovering its locomotive role in Europe.

Western German GDP expanded by 2.1 per cent in the first three months from a year earlier and grew by 0.5 per cent over the previous quarter. Unemployment edged higher in May to 2.599 million from 2.59 million the previous month. The unemployment rate, based on unadjusted figures, slipped from 8.4 per cent in April to 8.1 per cent.

'The data confirm that the way out of recession has begun, but to claim that good economic growth has arrived would be wrong,' said Ulrich Ramm, chief economist with Commerzbank. Most of the strong GDP growth and slowdown in the rise of unemployment was due to a strong performance in the construction industry, up 6.2 per cent on the quarter.

With imports rising more strongly than exports, the net trade contribution was nearly flat. Consumption, also flat on the quarter, remains a worry.

Despite falling real incomes, consumers have dipped into savings to maintain purchasing power. But few economists expect this to be sustained.

'With consumption weakening, it may be difficult for the economy to maintain the dynamic seen in the first quarter,' said Wolfgang Leoni, chief economist with Bank in Liechtenstein in Frankfurt.

Given the long lag between economic recovery and positive effects on the labour market, economists expect unemployment to rise further as firms continue to rationalise their workforces.