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 Friday, 10 January, 2003, 17:59 GMT
Another blow for struggling German economy
Lufthansa reported higher traffic numbers in December
Lufthansa provided some hope for the Germany
The outlook for the eurozone's largest economy remains bleak, in spite of a rise in exports and manufacturing orders in November.

The German government has hinted for the first time that it may lower its official growth forecast of 1.5% growth for this year.

Economy and Labour Minister Wolfgang Clement said it was "unlikely" that the revised forecast would be above the current growth target set by economists of between 0.6% and 1.1%.

We see risks of recession in early 2003

Holger Fahrinkrug
UBS Warburg
The revision poses all sorts of problems for Germany's newly elected centre-left government led by Chancellor Gerhard Schroeder.

The government's 2003 budget, which aims to cut Germany's deficit to 2.75% of gross domestic product, assumes the economy will grow by 1.5%.

Recession risks

Some economists are downright pessimistic about the outlook for the German economy in the near future.

"As there is no hope for a near-term domestic recovery due to this year's hikes in taxes... and the fact that eurozone interest rates are too high for Germany, we continue to see risks of recession in early 2003," said Holger Fahrinkrug, an economist at UBS Warburg.

Industrial orders in November rose 1.7%, but analysts said the foreign orders boom would not last.

The steady rise of the euro against the dollar in recent months has made German goods expensive abroad, leaving German exporters struggling.

Germany's trade surplus increased in November, although growth was mainly due to a fall in imports, which is a sign of weak domestic demand.

One piece of good news came from the German airline Lufthansa.

It said passenger traffic in December was up 12.6% compared to the same month in 2001, when the industry was still suffering from the effects of the 11 September attacks.

Lufthansa said its traffic numbers were roughly in line with those reported in December 2000.

France's patriotic struggle

Data released in the eurozone's second largest economy, France, painted only a slightly better picture.

The national statistics office INSEE said French gross domestic product increased 0.2% quarter-on-quarter in the third quarter of 2002, in line with expectations.

But economists said the government's forecast of 2.5% growth this year will he hindered by weak growth in the second half of last year.

"That's going to be very difficult," said Emmanuel Ferry, an economist at Paris-based investment house Exane.

"We are building on an unfavourable base."

French companies continue to struggle amid a weak global economy.

Sales of French carmaker Renault's own-brand vehicles slipped 2.5% last year, with the already shaky car market likely to get worse.

Top French retailers got off to a quick start with winter sales this week, after a sluggish run-up to Christmas.

In a stab at fostering a patriotic shopping spree, Paris had urged shoppers to snap up some bargains to boost the country's economic growth.

See also:

10 Jan 03 | Business
08 Jan 03 | Business
08 Jan 03 | Business
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