German economy on the edge of recession

By Batuk Gathani

BRUSSELS, AUG. 12. Latest economic indicators suggest that economic gloom continues to prevail in Germany particularly and euro-zone economies generally, as more staff losses are forecast in Europe's biggest economy.

The prospects of a general economic slowdown has alarmed 12 euro- zone Governments. Today, the German slowdown is rated as ''severe'' as the latest data reveal that unemployment in Europe's largest economy has been rising for the seventh consecutive month. A record number of firms are in implementing severe austerity measures to combat ravages of falling profits and recessionary conditions. The gloom is further highlighted by the fall in industrial production in major euro-zone economies, but sharp slowdown in Germany, which accounts for nearly a third of euro-zone's economy casts a long shadow. For small and large European firms particularly investment plans are now put on hold.

This is a serious blow to Chancellor Schroeder's hopes of lowering unemployment, especially when German general elections are due in the second half of next year. BASF, Germany's largest chemical company and one of the world's big five, announced largest job cuts in its history. Major German bluechip companies ranging from the national carrier Lufthansa to electronic and engineering conglomerate Siemens are pruning staff. Such downturn in the labour market has far reaching political consequences for the Schroeder Government.

Some German politicians have called for overtime cuts but such measures are rated as ``too timid'' and the German industry has called for deeper labour-market reforms which would ease strict restrictions to reduce staff. But this is politically unacceptable and psychologically damaging as it tends to lower morale and damage confidence.

The German opposition parties, called on Schroeder Government to take urgent measures to boost economic growth which at worse could fall below one per cent this year. There is also concern about rising inflation.

An ugly confrontation between trade unions and employers is widely predicted at the time of wage negotiations but room for manoeuvre is limited. although, German industry has called for lower interest rates, the European Central Bank attaches more importance to fighting inflation and has consistently resisted pressure to lower interest rates. This is reflected in a weakening of the Euro against the U.S. dollar.

The European Union media, with almost monotonous regularity, report large and small firms announcing job cuts, as German industry feels the pain of economic slowdown bites. But, the severity of slowdown has taken the German Government by surprise and confounded its economic planners, as it is revealed that the euro-zone's largest economy now lags behind eleven other members of Europe's single currency bloc in this year's growth projections.

As the German economy, Europe's largest and world's third biggest after the U.S. and Japan, hangs on the edge of recession, European fears grow about the prospects of a global recession amid news that the U.S. growth rate has slumped to its lowest for the last ten years and Japan is seen sinking deeper into economic crises.

The German business confidence is at its lowest for last five years. All this has triggered a major debate about global recession.

According to The economist key economic indicators indicate that the world economy is dangerously close to recession.

This perception is shared by many Germans who also argue that Germany's greater dependence on export of capital goods despite global economic slowdown, partly explains why Germany has been hit harder than other euro-zone economies.

According to April survey by Europe's leading financial newspapers, the euro-zone's economic growth prospects for the first half of this year suddenly look less favourable, as it slips to less than two and half per cent.

To contain worst ravages of economic recession, in April, the U.S. Federal Reserve, the Bank of England and the Bank of Japan cut interest rates. so far, the European Central Bank has resisted - for how long it remains to be seen.

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