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Germany Announces Zero Growth, Worst-Ever Deficit

The government's guardians of the ailing German economy on Thursday conceded that the country is experiencing zero growth and will rack up close to €43.4 billion in debt this year.


With zero growth and a soaring deficit, where is Germany's economy headed?

In a likely attempt to condence the pain, the German government decided on Thursday to present a double whammy of lousy economic news: Economics Minister Wolfgang Clement first issued a downward revision of the growth forecast for 2003 and the following year, and then Finance Minister Hans Eichel introduced a 2003 stopgap budget as well as a 2004 budget that will send the country plummeting into an ocean of red ink.

Earlier this week, Eichel conceded that deficit spending for 2003 would exceed €40 billion, a far higher figure than the original €18.9 billion firgure forecast by the government. That would place Germany far over the three percent limit for deficit spending set forth in the pact establishing the stability of the euro, Europe's common currency, for the second straight year.

Eichel has attributed the spiraling debt problem to Germany's weak economy, which has depressed federal tax incomes and forced the government to dole out even more money to support a jobless population approaching the 4.5 million mark.

A €43.4 billion nightmare

The Wednesday edition of the financial daily Handelsblatt reported that Eichel would tell parliament that Germany's deficit spending for 2003 would total €43.4 billion ($51.3 billion) -- a figure the paper said government officials confirmed off the record.

At a meeting of Schröder's cabinet on Tuesday, Clement said he expected zero percent economic growth for 2003, putting additional pressure on the government to push through its ambitious Agenda 2010 structural reform program. That's down from the government's earlier rather meager forecast of 0.75 percent.

The outlook is slightly better for 2004, Clement told the ministers, with expected economic growth of between 1.5 and 2.0 percent. But that is unlikely going to be enough to truly reinvigorate the the country's troubled business climate.

"We're still not going to experience a rebound, that's my interpretation," Clement said. "Rather, there's going to be a phase of economic revival."

Recovery dependent on global factors

Clement cautioned, however, that even those forecasts are dependent on a general recovery of the world economy and, especially, the United States economy -- a crucial import-export market for Germany.

In the run-up to Thursday's difficult news, the economics minister called on his colleagues in the federal coalition government of Social Democrats and Greens to approve and implement the legislation in Schröder's Agenda 2010 plan -- most crucially a third-wave of tax cuts that the government hopes will put cash in taxpayers' pockets and fuel consumer spending, which in turn would spark new growth.

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