German Economy in Best Form Since 2000 | Business | Economy and finance news from a German perspective | DW | 11.01.2007

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German Economy in Best Form Since 2000

Germany has won back its place as the driving force in the European economy, striding into the fastest growth for six years in 2006 and slashing its public deficit, data showed on Thursday.

Germany is getting back into economic shape after six meager years

Germany is getting back into economic shape after six meager years

The German economy, the biggest in the 13-country euro zone, expanded by 2.5 percent in 2006, its fastest rate of growth since 2000, the German federal statistics office Destatis calculated.

In 2005, German gross domestic product (GDP) had risen by just 0.9 percent.

Germany, which has implemented deep structural reforms in recent years, made good progress in getting its public finances in order, Destatis found.

The office calculated that the German public deficit amounted to 46.5 billion euros ($60 billion) in 2006, equivalent to 2.0 percent of GDP, the first time since 2001 that the deficit ratio has been below a 3.0-percent ceiling set by the EU. In 2005, the ratio had stood at 3.2 percent.

European Commission spokeswoman Amelia Torres said preliminary figures for Germany released by Eurostat, the European Union statistical agency, confirmed the bloc's decision to end deficit reprimand procedures against Berlin.

EU calls for corrective budgetary action by Berlin would formally end in "the coming months," Torres said. The commission, however, still expected Berlin -- and other countries in the bloc -- to take further action to rein in their budget deficits to ensure "balanced" finances, she added.

Growth to continue in 2007

Kursliste Symbolbild Aufschwung

Analysts expect a positive 2007

The German government hailed the data as "impressive."

"2006 was a successful year for Germany," Economy Minister Michael Glos said. "The world's champion exporter is now also an economic locomotive."

Glos added that he thought Germany would be able to maintain its upswing in 2007.

"We have every reason to be optimistic about the future," he said. "The favorable 2006 GDP data is a good basis for a continuation of the upturn in 2007."

WestLB economist Jörg Lüschow agreed.

"We're confident that the upturn will continue this year," he said, forecasting full-year 2007 growth of around 1.8 percent.

Destatis chief Walter Radermacher was also convinced that the current economic boom in Germany was no flash in the pan.

The upturn was "strong and stable," Radermacher said at a news conference.

"It's no nine-day wonder," he said. "Construction and private consumption finally appeared to have emerged out of their long dry period."

Dramatic economic turnaround

Euroscheine in Geldschublade

German domestic demand and exports were behind 2006's growth

The data mark a spectacular turnaround in Germany's economic fortunes. Only a few years ago, the country had been saddled with the lowest growth and one of the highest public deficits in the entire euro zone.

Now, however, Germany was back in the league of "top performers" internationally, reaping the benefits of robust global growth and long and painful structural reforms, Destatis said.

Germany's 2006 performance was better than expected: the government's official forecast had been for growth of 2.3 percent last year. In contrast to previous years, when German growth was driven primarily by booming foreign trade, growth impulses also came from domestic economy last year, Destatis found.

Domestic demand contributed much more -- 1.7 percentage points -- to growth than foreign demand, which accounted for 0.7 percentage point of growth.

Part of broad German upswing

Aufschwung hat Wirtschaft voll erfasst Symbolbild

Even Germany's lagging construction industry has grown lately

Positive economic data out of Germany appears never-ending at the moment, with unemployment falling to 10.8 percent in 2006 from 11.7 percent in 2005 and booming exports pushing the German trade surplus to a record high.

There is every indication, too, that the economy's robust health will continue.

Even the rise in value-added or sales tax (VAT) from 16 percent to 19 percent from Jan. 1 will not derail the recovery, and any related slowdown in consumer spending or overall growth will prove only temporary, experts say.

"After a wrenching five-year adjustment crisis, Germany is reaping the rewards of its strenuous efforts," said Bank of America economist Holger Schmieding.

"With pronounced wage restraint, some structural reforms, as well as cuts in taxes and government expenditure, Germany has finally become a better place to invest again, reversing its post-unification loss of competitiveness," the analyst said, adding that the whole euro zone would benefit.

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