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Monday, May 26, 2003

Portrait of the German Economy As a Young Man

OK let's see if I can call this one a bit better than the Ifo economists. What we seem to have is a sort of stop-start shuffle, on the expectations front, kinda 'one step forwards two steps back'. We've had this across the globe for nearly two years now. In the case of Germany we have overtight monetary conditions, fiscal retrension and deflationary tightening on the euro front. Oh yes, and don't forget the 'arthrosis' factor, an ageing and declining population. Bottom line: I just don't see where the growth is going to come from. I think, it's a question of looking in the mirror and seeing what you want to see.

Germany's closely watched Ifo business climate index rebounded more strongly than expected, raising hopes of an upturn in the ailing economy in the second half of the year, but not deflating expectations that the European Central Bank will lower interest rates next week.The index for western Germany rose to 87.6 in May, recovering from an unexpectedly sharp fall to 86.6 in April, and well above expectations for an increase to 86.7. Business expectations for the next three months also improved, to 97.2 from 94.9. Ifo economists said Monday's figures suggested that the risk of recession in the eurozone's largest economy was significantly reduced, and that the chances for a slight pick-up in the second half of the year had improved. Analysts cautioned that, at this stage, the reading represented a correction from the previous month's sharp fall, rather than signalling an imminent turnaround. Germany's economy shrank 0.2 per cent in the first three months of the year, and a raft of recent economic data from the country signal that Germany could face a period of at least for stagnation before a recovery can kick in. The recent strength of the euro, in particular, is liable to represent a problem for the export-driven economy.
Source: Financial Times

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