The German government finally scaled back its 2005 growth forecasts today, acknowledging that its earlier prognosis had been too optimistic in face of high oil prices and an unexpected economic contraction at the end of last year.
After a flurry of disappointing data recently and sharp downward revisions in growth forecasts by a host of other organisations, Economy and Labour Minister Wolfgang Clement said that the government was finally cutting its growth forecast for the current year to 1% from 1.6% previously.
Berlin 'is counting on growth of between 0.75% and 1.25%, or a median of 1%, for 2005. And gross domestic product (GDP) is expected to grow in range of 1.5-2% or 1.6% in 2006,' Clement said.
'The downward revision takes into account the less favourable basis in the fourth quarter of 2004 and oil price developments,' he explained. Berlin's decision to scale back its ambitions for this year has been long overdue.
Earlier this week, Germany's six top think-tanks - DIW, HWWA, IW, RWI, IWH and Ifo - slashed their 2005 growth forecast to just 0.7% from 1.5% previously. The International Monetary Fund and the EU Commission have also slashed their German forecasts recently to 0.8%.
The pessimism appears to be backed up by real economic data. Germany slipped into shallow recession at the end of last year, revised data published by the federal statistics office showed yesterday.
And there seems to be little evidence that things will improve any time soon. Exports, the sole driver of growth in the past, look set to slow as the global economic upturn runs out of steam.
No new impulses can be expected on the domestic side, with unemployment stuck at just under five million and consumer demand in the doldrums for the past three years.
