Forecast Adds to Pressure on Germany to Cut Rates

Germany’s central bank is likely to face increased pressure to cut interest rates in light of estimates Tuesday from five of the nation’s leading economic institutes forecasting a slower rate of economic growth through 1993.

The prognosis that Germany’s gross national product will grow only 1% this year and most likely remain at that level next year is the most pessimistic of a number of government and non-government projections in recent months. The institutes blamed global as well as domestic conditions.

Last spring, the same five institutes predicted 1.5% growth this year and a rosier 1993.

“The economic situation in Germany is weak,” declared the report, issued by leading economic research institutes in Munich, Kiel, Essen, Berlin and Hamburg. “The indicators we have now do not point to a quick turnaround.”

Among the conditions the institutes list for faster growth is a more relaxed domestic monetary policy--in other words, reduced interest rates. That statement, coupled with more pessimistic growth prospects, is certain to add to pressure on Germany’s central bank, the Bundesbank, to cut the key discount rate.

At 8.25%, the base discount rate is just one-half a percentage point off its post-World War II high.

While the bank’s unbending president, Helmut Schlesinger, claims that such high rates are needed to control domestic inflation, they have also acted to stall economic recovery throughout the West, brought severe strains to the 12-nation European currency exchange rate mechanism and generated a wave of bitter international criticism.

Some financial analysts, however, said reducing Germany’s high wages is more important than dropping interest rates in generating a domestic recovery.

Tuesday’s gloomy report is also certain to exacerbate Chancellor Helmut Kohl’s political problems. Ingrid Mattaeus, deputy leader of the opposition Social Democrats, labeled the report a “serious accusation” that government policy was off target.

Speaking Monday at the annual convention of his Christian Democrats, Kohl was finally forced to reverse himself and admit that the enormous costs of unification would eventually mean higher taxes for Germans.