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Tuesday, 9 July, 2002, 16:15 GMT 17:15 UK
Germany's economy stumbles
German football supporters
Germans have had little to celebrate this summer
Germany has unveiled another set of gloomy economic statistics, indicating that recent labour unrest may have hobbled the country's hesitant recovery.

Industrial production has taken a sharp knock, unemployment has continued to inch higher, and a key measure of business confidence dropped once again.

But despite Germany's crucial position in the European economy, the euro shrugged off the news, climbing to $0.9937 by 1600 GMT.

In the longer term, however, Germany's plight could spell trouble, European economics and Monetary Affairs Commissioner Pedro Solbes said.

Mr Solbes pointed out that cautious consumers, combined with ever-growing state spending, threatened to derail the EU's so-far resilient economy.

Summer of discontent

The immediate pain in the German economy has been caused by a combination of the summer slowdown and a series of strikes, which have affected a range of industries.

Unemployment, adjusted for seasonal hiring and firing, rose by a higher-than-expected 39,000 in June to 4.092 million.

A Babcock Borsig plant
German industry has hit the buffers

Florian Gerster, president of the Federal Labour Office, said there would be little improvement in the job market before the last few months of this year.

At the same time, German industry has slowed sharply.

Industrial output fell by a worse-than-expected 1.3% in May, knocked back by the first engineering strikes in seven years.

Germany's economy ministry said it was confident that production would bounce back later in the year, blaming May's decline largely on one-off factors,

But the influential Deutsche Institut fuer Wirtschaftsforschung research institute forecast that the economy would grow by just 0.6% this year.

Compounding the gloomy mood, the ZEW institute said its economic expectations indicator - based on a survey of analysts and investors - had fallen once again in July.

Wider worries

Opinions were mixed as to whether Germany's stuttering economy would pose a problem for Europe's recovery.

Pedro Solbes
We spend too little; governments spend too much, Mr Solbes says

Mr Solbes warned that Europe had no room for complacency.

In a new report, the European Commission forecast that the 12 eurozone countries should show second-quarter growth of 0.3-0.6%, accelerating to 0.7-1% in the third quarter.

This performance concealed a sluggish performance from consumers, the key supporters of economic growth, Mr Solbes said.

"The anticipated improvement of domestic demand has not yet materialised," Mr Solbes said.

Spend, spend, spend

At the same time, governments are not reining in their spending, and the commission has become concerned that certain countries are not sufficiently in control of their finances.

There are worries over France, which has just seen a change of regime, and Germany, whose imminent elections have been blamed for prompting some slippage in discipline.

The European Central Bank has raised alarms about Germany's recent union contracts, offering pay increases of 3% or more.

According to EU rules, eurozone members are supposed to move their budgets close to balance or even in surplus by 2004.

Mr Solbes said the weakening of budgetary positions in several countries was "worrying".

See also:

07 Jun 02 | Business
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24 Apr 02 | Business
19 Apr 02 | Business
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