German economic advisers see 2006 growth of only 1 percent | VailDaily.com
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German economic advisers see 2006 growth of only 1 percent

BERLIN – The German economy, Europe’s biggest, will grow by only 1 percent next year amid high oil prices, the government’s panel of economic advisers forecast Wednesday.The independent panel predicted that gross domestic product will grow by 0.8 percent this year – half of last year’s rate. The slight acceleration it forecast for 2006 is below the outgoing government’s projection of 1.2 percent growth.”The German economy still is not in good shape,” the five-member council said in its annual report. Last year’s growth of 1.6 percent, fueled by strong exports, followed three consecutive years of near-zero expansion, but consumer spending at home has remained weak as unemployment stays high.”A fundamental recovery of domestic demand should not be expected in the forecast period,” the report said, adding that higher energy costs and related price increases “will deprive private households of buying power.”With Germany’s two biggest political parties in the final stretch of negotiations on forming a new coalition government, the experts cautioned them against increasing value-added tax next year as they try to cut Germany’s budget deficit. A VAT increase has emerged as a likely measure, although it remains unclear whether it would come next year or in 2007.The panel said that a “special burden” on the German economy this year has been the “enormous” increase in oil prices, and cautioned that higher energy costs would have a stronger effect on the world economy in 2006.It forecast overall export growth of 5.5 percent this year and 6.3 percent in 2006, down from 9.3 percent last year. Domestic demand, it said, would stagnate this year and grow by only 0.3 percent next year.The economists forecast that the country’s budget deficit will come in at 3.5 percent this year and 3.3 percent next year. Members of Chancellor-designate Angela Merkel’s proposed government say Germany must get the deficit within a European Union-imposed limit of 3 percent of GDP in 2007.The panel also saw little improvement on Germany’s labor market. They predicted that the unemployment rate would average 11.6 percent next year, down from 11.8 percent this year.Government figures earlier Wednesday underlined Germany’s dependence on strong exports. The Federal Statistics Office said that the nation exported goods and services worth euro69.5 billion (US$81.9 billion) in September, up 12.8 percent from euro61.6 billion (US$72.6 billion) in the same month of 2004.Imports rose only 9.8 percent to 54.5 billion euros ($64.2 billion), and the country’s trade surplus shot up 26 percent to 15 billion euros ($17.7 billion). The statistics office said the figures were preliminary.Vail, Colorado


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