German economy forecast to continue sluggish growth

Describing 2005 stoically as “not a bad year,” German economic forecasters at leading research institutes and agencies said recently that growth overall in the country will remain slow and may not pick up until export-led growth sparks advances on the home front.

In addition to the six German institutes that issued this prediction, other agencies have forecast slower brick-and-mortar sales, continued high unemployment, fewer etail sales, and more pressure on retailers to reduce prices — all backing up an announcement by the International Monetary Fund (IMF) a week ago that reduced its forecasts for growth in Germany through 2005.

“Firms remain cautious with their spending plans, and a poor job market is dampening consumption demand,” the IMF said in a regular statement made after consulting with the German government and Bundesbank, the German Central Bank. “The rise in oil prices is also having a negative impact.”

In other support for the less-than-enthusiastic mood, Germans surveyed recently by the German research group, TNS Infratest, also said that price plays a much larger role in purchase decisions than before, thus tempering purchases. That added insult to injury based on reports of retail sales in Germany falling in September, accounting for the second drop in three months, according to reports from the country’s Federal Statistics Office. Retail sales declined 0.4 percent from September, the office reported, and economists expect sales to remain unchanged.  

More news pointing to continued economic stuttering is that of a German unemployment rate that rose to 10.7 percent in September, which is the highest it’s been since February 1999. That figure accounts for about 4.45 million unemployed, or an increase of about 350,000 since Gerhard Schroeder took the chancellor’s office in 1998, the International Herald Tribune reported.

And the euro currency’s recent strength against the dollar — it hit 1.2988 on Nov. 15 after inching slightly over 1.30 the previous week — is also taking its toll. Italy’s Prime Minister Silvio Berlusconi called last week for “supranational intervention” to support the dollar against the euro — particularly important in Germany as the largest economy in the euro zone.

“The appreciation of the euro has boosted the cost of European products,” Berlusconi said in news reports, “and even Europeans realize it’s better to buy from the dollar area.”

Internet sales also not a hot click
In other retail news supporting the news of a continued sluggish economy, the Berlin-based association of German independent retailers (HDE) issued a report saying that etail will also suffer through 2005. The group said that although sales will grow, the rate at which they are expected to grow will slow dramatically — down to an expected 13 percent increase in 2005 over 2004 from a 17 percent increase in 2004 over 2003.

That means the group expects sales to reach in 2005 Euro 14.5 billion (about USD $18.8 billion), or only Euro 1.5 billion (about USD $1.9 billion) more than 2004 over 2003. “The recent growth dynamic in the Internet will continue to weaken slightly, said HDE Director Holger Wenzel. Wenzel said that independent dealers also increasingly are using auction sites such as eBay to discount and sell their goods.

“According to a recent annual survey by HDE, at least a quarter of brick-and-mortar stores also offer their customers the opportunity to shop online or to find their wares on auction sites,” Wenzel said. “Some 44 percent of stores who sell online as well as in their shops expect online sales to increase this year,” while only 4 percent said they expected online sales to decrease.

Oh where or where …
How and when will growth happen? The Germany government predicted that export-led growth could in the long run start the process of demand-led growth at home. But the 2002 recession was not followed by the recovery at the strength expected, experts have said.

“I’m getting quite concerned about the European economy,” Stephen Webster, chief European economist at 4Cast in London, told the International Herald Tribune. “We seem to have growing inflation and a slowing pace of recovery. The European Central Bank can’t raise rates, and it can’t lower them if inflation is going up.”

Forecasts from the IMF said the U.S. economy — not exactly quick-stepping at a lively pace — will outpace the economy of the region of the euro by expanding 4.3 percent against Europe’s 2.2 percent.

The six institutes reporting the news were the German Institute for Economic Research in Berlin, the World Economy Archive in Hamburg, the Institute for Economic Research at the University of Munich, the Institute for World Economy in Kiel, the Institute for Economic Research in Halle and the Rhein-Westphalian Institute for Economic Research in Essen.

SNEWS® View: Stuttering growth in Germany, Europe’s largest single economy, may be a harbinger of others that will do less than hoped for or expected especially if the dollar is not bolstered against the euro. This could be a reason for outdoor, fitness and sporting goods suppliers to think twice about forecasts and production for 2005 and how it could relate to European sales. Germany accounts for almost a third of the economy of the dozen nations sharing the euro currency, yet “consumer demand is not going anywhere,” a London economist has said. If consumer demand there doesn’t gain strength and in fact continues to fall, it can throw a wrench in expansion in the whole region, including additional candidate countries slated to join the European Union, such as Romania and Turkey, where an increasing amount of manufacturing for U.S. countries takes place.