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Germany

Germany Slices Forecast For Economic Growth This Year

Germany's economics and labor minister sees the country's economy slipping below previous expectations this year. He wants Germans to realize that major changes lie ahead.

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Worried: German Economics Minister Wolfgang Clement

German Economics and Labor Minister Wolfgang Clement made an economic concession on Wednesday that his critics had been expecting him to make for weeks: The government is reducing its growth forecast for Germany's sluggish economy from 1.5 percent to 1 percent.

The Social Democratic minister also used the announcement as a way of preparing Germans for the introduction of deep changes in their society, designed to kickstart the once-powerful motor of Europe's biggest economy.

"This year, we have to set some goals so that we can finally break out of the vicious cycle in which our country has been trapped for at least two decades," Clement said. "I am talking about the vicious cycle of a weak and constantly falling growth rate on the one hand and an ever growing loss of jobs that leads to lower growth rates on the other."

Unemployment also expected to rise

Clement made the statement as he released the government's annual economics report for 2003. Besides the reduced growth rate, the report contained one other piece of grim economic news: This year's unemployment rate is expected to be 10 percent, compared with 9.8 percent last year. That would mean that an average of 4.2 million people would be out of work.

The prognosis that Clement issued is more than a numbers game. Officials will now use the forecast to calculate how much tax revenue the government will have this year and how much money will flow into the country's pension and health insurance funds. The prediction could also affect the size of the country's budget deficit, an issue that has already earned Germany the embarrassment of being formally reprimanded by the European Commission for failing to rein it in as set by the terms of the Stability and Growth pact.

As early as this month, Clement refused to acknowledge that the government would have to reduce its forecast, just as other economic institutions had done. But on Wednesday, the minister kept his focus on the future and the role that Germany's leaders must play in shaping it, and not on his change of mind.

"Our top economic task is to win back the trust in Germany's economic strength and abilities," he said. "In order to win back this trust, politicians must be reliable and predictable."

Eichel thinks deficit under control

German Finance Minister Hans Eichel did his best on Wednesday to maintain the trust of EU officials. After Clement's new projection was released, Eichel said the government still expected the deficit to remain under the defining level of the euro stability pact -- 3 percent of a country's gross national product. This month, EU officials began an investigation to determine whether Germany should pay substantial fines because its deficit climbed to 3.7 percent in 2002. The situation remains in control, Eichel assured officials and taxpayers.

Eichel and his boss, Chancellor Gerhard Schröder, are trying to keep the deficit down at a time when the country's has virtually stopped growing. Last year, the economy nearly fell into recession with an estimated growth rate of 0.2 percent. It was the economy's worst performance since 1993. The only thing that pumped life into it was the country's exports. Without them, the country's economy would have shrunk by 1.3 percent as consumers kept a tight hold on their wallets and investment declined.

The situation has gotten so bad that roughly two-thirds of Germans interviewed for a survey said recently they were willing to give up at least some of their prized benefits -- vacation days.

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