"Wise Men" See No Real Growth in 2001-2002

According to a report issued on Wednesday by the so-called "Five Wise Men", the German economy is in for a dim turn next year. The financial experts describe calls for public spending programs and extra tax cuts as misguided.

The German government's council of independent economic advisers forecast that the national economy will grow by just 0.7% in 2002, far below the 1.3% forecast by the country's leading economic research institutes in their autumn report.

The council of economic advisers also presented a gloomier outlook for 2001 than the think-tanks had predicted. The wise men see German gross domestic product expanding by 0.6% this year, whereas the economic analysts are expecting 0.7%.

The wise men see the country's average unemployment level rising by 110,000 next year to 3.96 million. They forecast that the economy will reach its low point during next year and a gradual recovery will set in.

Predicting the future

They see it as unlikely that the economic situation will further worsen from its current level. But the economic advisers warn the government that adopting an expansive finance policy would be the wrong way to react to the current economic situation.

They single out the calls for programs of public spending and for the bringing forward of tax cuts as particularly misguided. Where public spending is already planned, it makes sense for it to be carried out promptly, the experts argue.

They point out that the government has already started a roads-building program. But they also warn against allowing a public spending program to be introduced through the back door, saying this would damage the credibility of the government's policy of budget consolidation.

After all, they point out, the budget position remains precarious. But higher deficits due to the economic downturn are acceptable, they stress.