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Back on track

October 21, 2010

The German economy appears set to continue its current strong growth. The government released figures on Thursday sharply raising its figures from a previous forecast and predicting a drop in unemployment.

Chart of rising economic growth
Few expected the economy to recover so easilyImage: BilderBox

The German Economics Ministry has more than doubled its growth forecast for the German economy.

In his autumn review, Economics Minister Rainer Bruederle said on Thursday he expected gross domestic product to rise by 3.4 percent, up from a forecast of 1.4 percent in the spring.

"We have seen growth rates like this only once since the reunification boom," Bruederle said, referring to a 2006 economic leap.

From problem child to model student

"The new figures make Germany the growth motor of Europe," Bruederle added. "Germany is the land of economic recovery."

Bruederle added that it was time for Berlin to start wrapping up stimulus and bank bailout programs.

Rainer Bruederle
Bruederle said Germany was Europe's motor for economic recoveryImage: AP

Berlin expects unemployment to continue to fall, dropping by 190,000 to 3.2 million this year and falling below the key three-million mark to 2.9 million in 2011.

"The German employment market has changed from being the problem child to becoming a model student," Bruederle said.

Comback for the world's second-biggest exporter

Just last year, Germany was hit by its steepest downturn in about six decades when the economy contracted by 4.7 per cent. But now exports are booming and companies are reporting solid profits.

The government cautions, however, that the economic expansion rate will slow to 1.8 per cent in 2011 as the global economy loses steam.

Even this predicted drop must be put into perspective, according to Friedrich Heinemann of the Mannheim-based Center for European Economic Research.

"Germany has an aging economy and an aging population," Heinemann told Deutsche Welle. "We do not have the growth potential of some of the emerging economies, so 1.8 percent is not that bad, and it would really be a success if we could have this speed."

An American flag and a Mercedes-Benz symbol
Germany remains the world's second-biggest exporter, after China.Image: AP

Germany needs domestic demand

As the world's second biggest exporter after China, Germany's economy is largely dependent on global growth. But Heinemann said Germany cannot afford to rely solely on exports:

"The hope really is that domestic demand, not only private consumers but also domestic firms, start to invest again ... So both aspects, domestic and external demand, could really match each other next year."

The government's growth projections are in line with recent forecasts by the nation's leading economic institutes. The European Commission has also forecasted a 3.4-percent growth rate for Germany this year.

Author: Dagmar Breitenbach, Andreas Illmer, (AFP, dpa)
Editor: Chuck Penfold