Germany sees 1.2% output gain in 2010
2009-10-16

People Angela Merkel Event 2008 Germany Recession Source (AFP)

BERLIN (AFP) - Germany's economy will grow by 1.2 percent in 2010, the government said on Friday, sharply hiking an earlier forecast of 0.5 percent in April, as Europe's powerhouse emerges from its worst post-war slump.

In new projections, the government of Europe's biggest economy was also much more bullish on output this year, saying it would contract by 5.0 percent, compared to the 6.0 percent contraction it forecast in April.

"We have a good chance of consolidating this upward trend next year," said Economy Minister Karl-Theodor zu Guttenberg in a statement.

The German economy reached its lowest point during the summer and is now climbing out of the trough, he added.

Germany, one of the world's leading exporters, saw its economy fall into a tailspin earlier this year as demand for its goods abroad plunged amid the global financial crisis.

But as the world began to haul itself back onto its feet, Germany has also recovered quicker than most, spurred by improving exports and huge injections of cash -- some 80 billion euros (119 billion dollars) -- from the government.

The International Monetary Fund also hiked its forecast for Germany earlier this month, predicting 2010 output of 0.3 percent. The European Commission has also revised higher its view of its leading economy.

And on Thursday, a group of the country's leading economic institutes also lifted their forecast for next year to 1.2 percent from a dire projection of minus 0.5 percent made in April.

The improved economic figures should have a knock-on effect on the jobless data, the government said, with an average of 4.1 million people unemployed in 2010 -- many fewer than feared at the height of the crisis.

"Negative forecasts of over five million unemployed ... have since become completely unlikely," said zu Guttenberg.

The improved economic outlook takes place against a backdrop of intense and tricky negotiations between Chancellor Angela Merkel and her new coalition partners, the pro-business Free Democrats (FDP), on future economic policy.

Following a convincing election win on September 27, Merkel's conservative CDU/CSU bloc have since squabbled with their new partners, particularly over tax cuts to stimulate activity.

The FDP has called for 35 billion euros of tax relief but Merkel, aware that the financial crisis has blown a gaping hole in the public purse, is wary.

Media reports on Friday suggested that cuts could be more like 20 billion euro over four years.

Zu Guttenberg again insisted on the need to cut taxes for growth. "Only when citizens and the economy are relieved ... will we effectively conquer the crisis," he said.

The new government has also drawn up a plan to relaunch the economy entitled "upswing through growth," business daily Handelsblatt reported on Friday.

The plan contains 10 proposals to push the economy forward, including slashing red tape, making investments easier and reforming the corporate tax system.