German Growth Lethargic, Likely to Remain So

From Reuters

German economic growth slowed to a crawl last year and the government warned Thursday that there is little hope that 1996 will be any better for Europe’s largest economy.

The economy grew just 1.9% in 1995, the government’s statistics office said, a slowdown from 2.9% in 1994. The data came after news that unemployment surged to 9.9% in December.

The strong mark, high wage increases and tax increases in 1995 were cited as reasons for the drop in growth, said Guenter Rexrodt, German economics minister.


He predicted expansion will continue at a weak pace this year and could be less than 2%.

The slowdown in Germany, as well as in other parts of Europe, could spell trouble for the United States, as exports have helped fuel U.S. economic growth.

“Germany is not in recession in the winter of 1995-1996 but is in a phase of clearly dampened growth,” Rexrodt said.

But economists warned that the economy is losing momentum rapidly and that growth could slip as low as 1.5% this year. Fears of unemployment are expected to keep consumer spending weak despite a 2.5% rise in incomes.

They were particularly concerned that growth in western Germany slowed to 1.5% from 2.4% last year. The rate throughout Germany was higher due to 6.3% growth in the east.

German officials have few tools at their disposal to revive the economy, analysts said.

With interest rates already low and no room left for a rise in state spending if the country wants to qualify to take part in a single European currency, the government is seeking alternative ways to boost output and create jobs for its 3.8 million unemployed.

Politicians, business leaders and unions are calling for more flexible working practices, tax cuts and deregulation to make the country a more attractive investment target.