Germany's six leading economic think-tanks today sliced nearly in half their growth forecast for the German economy this year to just 0.7%, spelling bad news for the labour market and the state of the country's public finances.
In their traditional spring report, the institutes - DIW, HWWA, IW, RWI, IWH and Ifo - revised downwards their 2005 growth forecast to just 0.7% from an earlier prognosis of 1.5%. And the institutes said they were pencilling in growth of 1.5% for the euro zone's biggest economy next year.
In 2004, growth of German gross domestic product had picked up substantially to 1.6%, largely because there were a greater number of working days in 2004 than in 2003. The anticipated slowdown this year would also be partly due to calender effects, with fewer working days available again in 2005.
In calendar-adjusted terms, the euro zone's biggest economy would grow by 0.9% this year and then by 1.7% in 2006, the institutes predicted.
The sluggish growth meant that no substantial improvements could be expected on the labour market in the near future, the institutes cautioned.
The jobless total, which stood at 4.381 million or 10.2% of the workforce in 2004, was expected to average 4.844 million this year, equivalent to a jobless rate of 11.1%. And next year, it would come down to 4.518 million or 10.4%, the institutes predicted.
The combination of weak growth and high unemployment signalled bad news for Germany's public finances. The think-tanks predicted that the German public deficit would again breach European Union limits both this year and next year.
The institutes said they expected the German public deficit to amount to 3.4% of GDP this year and 3.3% in 2006, breaching the 3% limit laid down in the EU's Stability and Growth Pact for the fourth and fifth years running. The government had vowed to bring the deficit ratio back below 3% this year.
The institutes' gloomy report follows similar downward revisions in German growth forecasts recently by the International Monetary Fund and the European Commission, which both announced they now expected the German economy to grow by a meagre 0.8% this year.
The German government is scheduled to release its own updated forecasts on Friday, with Berlin also believed to be targeting growth of just 1% this year instead of the earlier projected 1.6%.
