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Tuesday, 19 June, 2001, 17:07 GMT 18:07 UK
German warning on growth
Graph to show decline in European industrial output
Germany's economics minister has warned that his country's growth might have slipped to zero for the three months April, May and June.

The warning, from Werner Mueller, added to gloom caused by official figures showing that industrial production in the eurozone had hit a two-year low.

Output from factories in the 12 eurozone states grew by only 1.6% in the year to April, compared with a long-term average of 2%, according to the European statistics office, Eurostat.

German economics minister Werner Mueller
Werner Mueller: "Growth may even be zero"
The announcements come the day after Eurostat revealed that eurozone inflation rose to 3.4% in May, compared with a target of 2% set by the European Central Bank (ECB).

Also on Monday, Bundesbank member Hans Reckers said a German recession "cannot be excluded".

The combination of figures have further highlighted the dilemma facing the ECB, which, if it cuts interest rates, risks stoking inflation, but, by maintaining rates, may help eurozone manufacturers slide into recession.

Output fall

The last time the annual rate of industrial production slipped below 2% was in July 1999, when it touched 1.2%.

During April alone, eurozone industrial production declined by 0.5%.

While this figure was slightly less than forecast, the annual slowdown was much sharper than expected.

In March production dipped by 0.3%, following a rise of 0.6% in February.

For the whole 15-country European Union, adjusted industrial output fell 0.4% in April from the previous month, compared to a drop of 0.2% in March and an increase of 0.4% in February.

Adding to worries, the eurozone Purchasing Managers' Index, which is seen as a leading indicator on the state of the economy, tumbled into negative territory in April.

A drop in the volume of new orders received by manufacturers dragged the index down, while slower growth in employment also had an impact.

Germany's plight

The release of the data came hours before Mr Mueller, speaking to an oil industry meeting, said Germany could struggle to meet its target of 2.0% growth this year.

"Second quarter growth may even be zero," he said. "If that is the case, then full-year growth of 2.0% will be hard to attain."

The German government, which put year-on-year growth in the first quarter at 2.0%, only recently revised down its 2001 target.

A spokesman for the German Finance Ministry said that the new target still held.

"It makes no sense to revise them every week," he said.

And German chancellor Gerhard Schroeder restated his determination not to be drawn into ill-considered action to boost the economy, reportedly telling deputies there was no cause for a "knee-jerk reaction".

For the eurozone as a whole, the European Central Bank said in its latest monthly report that it was feeling more pessimistic about the region's growth prospects and downgraded its estimates for the year to 2.2-2.8%.

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See also:

18 Jun 01 | Business
Eurozone inflation soars
14 Jun 01 | Business
ECB downgrades European growth
08 Jun 01 | Business
Eurozone trouble ahead
07 Jun 01 | Business
Eurozone rates left on hold
10 May 01 | Business
Eurozone rate cut surprise
02 May 01 | Business
Eurozone manufacturing gloom
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