The Hindu : Survey predicts economic recovery by Germany

Online edition of India's National Newspaper
Friday, Mar 29, 2002

International

International

Survey predicts economic recovery by Germany

By Batuk Gathani

BRUSSELS MARCH 28. The eurozone economy of 12 member states received a boost when a prestigious business survey by the Munich-based IFO Institute of 7,000 companies revealed that Germany, the E.U.'s largest economy, will start growing again after sinking into its first recession in eight years.

Germany accounts or over 40 per cent of the euro zone's GDP and is rated as the "locomotive'' economy of the region.

The revival of the German business confidence as revealed by the survey would suggest that the stage is set for a major economic recovery in the E.U. countries. In recent years, bold and imaginative initiatives on privatisation and pro-competitive regulation of vital utilities and service industries have led to economic growth and increased investment.

However, caution is advised with the current surge of optimism, and according to an IFO Institute spokesman, it was too early to declare that Germany has been nursed back to economic health. The current unrest on the labour front in the country, culminating in a spate of sporadic strikes and unemployment figures have a depressing effect all round. But, the current sign that German retail sector was recovering after months of stagnation has also boosted optimism.

On the negative side, a record number of medium and small size businesses have gone bankrupt with severe cash flow problems despite cheap lending by commercial banks. Although private sector economists are raising their forecasts for German growth this year, the consensus is that it may not be more than 1 per cent compared to the euro zone's average of 1.5 per cent. The German GDP growth has lagged behind that of the euro zone every year since the launch of the euro in 1999. On the optimistic side, German industrial production and exports may soon gather pace, boosting prospects of more economic dynamism. All this may help the Chancellor, Gerhard Schroeder's election prospects in September.

The IFO survey states that a major economic recovery across the E.U. is likely to be made possible by a stronger demand from the U.S. In Italy, another survey reveals that business confidence is rising with new business from the U.S. Germany and Italy account for about half of the euro zone's economic output. The European Central Bank's view is that the zone is gradually returning to a modest but healthy economic growth after a fall in its GDP in the last quarter of last year.

The German and Italian companies have said that the widely predicted economic recovery would take time and a spokesman for one of the largest German commercial banks, Deutsche Bank, said the commercial lender faced a "difficult market environment''. The chief economist of the ECB, Mr Otmar Issing, said the expected growth would be "moderate'' but there were "substantial uncertainties'' regarding the strength of the European upswing.

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