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Business

German Companies Get Optimistic

German companies have expressed cautious optimism about upcoming business prospects. A survey of German business confidence published on Monday says nearly half of all companies expect production to expand.

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Can Germany's domestic economic growth match export rates?

About 1,500 German companies took part in this year‘s spring survey, conducted by the Cologne-based Insitute for German Economy, and to the surprise of many analysts their expectations were not at all gloom and doom. In spite of high oil prices and a strong euro, German export industries in particular stand to profit once again from a robust demand for their products.

Thirty-eight percent of business leaders are convinced that the foreign trade boom will continue, making Germany the world’s biggest exporter for a second year running. But when it comes to domestic growth, the outlook is slightly bleaker.

Handy-Produktion bei Siemens

Cell phone production at Siemens

Michael Hüther, who heads the institute says there has been a shift in the outlook for the domestic market. "The optimism has cooled off a bit, but a relapse into stagnation is unlikely. One sign of this is that companies are planning to start investing again."

Investment plans

And indeed one third of German companies said they would invest in new plant and technology in 2005. For the first time in many years, the number of businesses planning to invest outnumbers those which are not.

Production is also set to rise with 35 percent of companies in the east and 39 percent of those in the west expecting higher output. With such predictions in the air, Michael Hüther sees little reason for pessimism. "Given the current economic data, we think a growth rate of between one and one point five percent would be realistic."

But not everyone shares in his optimism. Last week the EU commission forecast that German growth would drop to a meagre 0.8 percent this year.

Unfounded fears?

Mr Hüther also sought to dispel fears of a dramatic drop in tax revenues as a result of dwindling economic growth. On Monday, two other German economic institutes warned of a seven billion euro gap opening up in the current government budget as a result of the economic downturn. Finance minister Hans Eichel played down worries about a further shortfall, dismissing them as totally groundless.

"Tax revenues in March were most satisfactory, and in the entire first quarter of 2005 they lived up to estimates made last year. So there is no indication of a drop in revenues and all reports in that direction are premature," he said.

Arbeitsamt in der Hamburger Innenstadt

Germany has a long way to go to reduce its unemployment burden

But German buisness leaders believe domestic consumption will remain at rock bottom and is unlikely to drive the economy forward, which could further worsen the current German job crisis.

More than 30 percent of the companies surveyed said they will continue to shed workers in spite of a huge effort by the Schröder government to reduce corporate taxes and lower labor costs here in Germany.

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