Western German economy contracts by 1.9% in 1993

WESTERN German gross domestic product declined by a real 1.9 per cent in 1993 from a year earlier. The Federal Statistics Office confirmed the figure a day earlier than expected after it was leaked, causing widespread debate over the direction of the economy.

Eastern German GDP grew by 6.3 per cent, giving a pan-German real GDP figure of minus 1.3 per cent for last year.

Although there was general agreement among economists that the western German economy had weakened again in the final quarter of last year, estimates of the extent of the drop varied greatly.

The most pessimistic came from Dresdner Bank, which predicted a decline of between 0.5 and 1 per cent in fourth-quarter GDP from the previous quarter.

'Given the strong performance of the economy over the spring and summer, the final-quarter figure must be sharply negative to get an overall decline of 1.9 per cent,' said Klaus Friedrichs, Dresdner's chief economist.

Deutsche Bank forecast a fourth- quarter GDP drop of 0.5 per cent in the west, while Union Bank of Switzerland in Frankfurt suggested minus 0.3 per cent, and Goldman Sachs minus 0.1 per cent.

The DIW economic research institute last week challenged the view that two successive quarters of growth and stabilisation in production and demand last summer had marked the turning point towards recovery.

Forecasting a sharp decline of western GDP in the fourth quarter, it said the economy was heading for a double-dip recession.

Economic expectations among Germany's small and medium-sized businesses are at a 10-year low. Their trade federation said a survey showed members were close to panic over the economic situation.