Report Gives Upswing Forecast for the West German Economy

The West German economy is likely to forge ahead this year and unemployment should begin to decline, according to a report released Monday by five leading economic institutes.

The institutes, in a joint semiannual report, forecast that the economy will grow by 3.5% in 1986, comfortably above the 2.4% recorded in 1985 and the highest rate of expansion since 1979.

“All indications are that the upswing will continue into next year,” the report said. Economics Minister Martin Bangemann agreed, declaring that “the government and the institutes are in agreement that everything points to the economic upswing continuing into a fifth year in 1987.”

The economic outlook was good news to the government of Chancellor Helmut Kohl, which faces a national election next January, for the institutes’ analysis seemed to vindicate the government’s economic policies.

The report was also seen here as strengthening the chancellor’s hand at next week’s economic summit meeting in Tokyo, where the United States is expected to urge the Bonn government to stimulate economic demand in order to power a larger European recovery.

The report suggested that unemployment in West Germany will fall to an average 2.23 million in 1986, compared to 2.3 million in 1985, when about 9.3% of the work force was out of work.

According to the economic institutes, inflation should fall to 0.5% this year, for a 34-year low, a drop partly due to lower costs of oil in a country that produces no petroleum.

The mainspring of growth is expected to be domestic demand, the report said, with a healthy rise in consumer spending as well as corporate investment.

However, the report predicted that West German exports will grow by only 3% in 1986, less than half of last year’s 7.2% increase. Import growth will be nearly twice that of exports, the institutes predicted.

But the leveling off of exports should be countered by cheaper imports, with export prices holding up.