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Germany raises 2011 growth forecast to 2.3 pct

By Geir Moulson

Associated Press

Published: Wednesday, Jan. 19 2011 4:55 a.m. MST

German Economy Minister Rainer Bruederle, left, and the President of the German Central bank, Axel A. Weber, right, talk at the beginning the weekly cabinet meeting in Berlin, Germany, Wednesday, Jan. 19, 2011. The German government on Wednesday raised its growth forecast for the country's economy this year to 2.3 percent, predicting that slower but solid growth in exports will be accompanied by stronger private spending. Officials expect somewhat slower economic growth of 1.8 percent in 2012, Economy Minister Rainer Bruederle said. "Germany's economy achieved the comeback of the year in 2010," Bruederle said. "2011 will be a good year. The upswing has two stable legs: export and domestic demand."

Michael Sohn, Associated Press

BERLIN — The German government on Wednesday raised its growth forecast for the country's economy this year to 2.3 percent, predicting that slower but solid growth in exports will be accompanied by stronger private spending.

Officials expect somewhat slower economic growth of 1.8 percent in 2012, Economy Minister Rainer Bruederle said.

"Germany's economy achieved the comeback of the year in 2010," Bruederle said. "2011 will be a good year. The upswing has two stable legs: export and domestic demand."

The government increased its 2011 forecast from the 1.8 percent it predicted in October.

The change comes after official data showed that Europe's biggest economy expanded by a powerful 3.6 percent last year — its fastest pace since reunification two decades ago — as rebounding exports were accompanied by strengthening domestic demand. It shrank by a painful 4.7 percent in 2009.

Germany is the world's second-biggest exporter after China. Asurge in exports into a recovering global economy set off last year's comeback.

For this year, the government is predicting export growth of 6.5 percent — cooler than last year's 14.2 percent spurt. It expects exports to increase by 6.4 percent, compared with 13 percent last year.

It says private consumption should increase by 1.6 percent in 2011 after edging up 0.5 percent last year.

That should be supported by a further fall in unemployment. Bruederle said that Germany's jobless rate should average 7 percent this year, declining from 7.7 percent in 2009.

Germany's swift recovery has made it a standout in the 17-nation eurozone, where smaller economies such as Ireland, Greece and Portugal have been struggling with huge debts.

Its healthy growth also is helping government finances. Germany should get its budget deficit down to about 2.5 percent of gross domestic product this year, Bruederle said.

The deficit came in at 3.5 percent in 2010 — exceeding the 3 percent limit laid down by European Union rules for the first time in five years.

Germany has led calls for its eurozone partners to get their finances in order and improve their competitiveness.

It opposes boosting the size of the region's €750 billion ($1 trillion) bailout fund — though it has signaled that it may be prepared to bolster the fund so it can actually lend the full headline amount. It can't currently do that because of guarantees required to get a triple-A credit rating for its bonds.

"We cannot unconditionally expand further the euro rescue fund — that would pave the way into a transfer union," Bruederle said.

He stressed that "developments in the eurozone are of enormous importance for our economy," given that Europe is the main market for many German companies.

"We say yes to European solidarity ... we are prepared to make significant contributions," he said. But "solidarity always has two directions; if states get help, they must accept strict conditions for their economic and financial policy."

The minister also noted that Europe isn't alone in having debt problems. He pointed to Treasury Secretary Timothy Geithner's recent call for quick passage of an increased U.S. borrowing limit — which Geithner said was needed to avoid an unprecedented government default on its debt obligations.

"That may have been motivated by domestic politics, but it shows that there are major problems to be dealt with," Bruederle said. "It's almost surprising that the markets are currently occupied more with the euro and the eurozone."

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