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Last Updated: Thursday, 23 October, 2003, 12:27 GMT 13:27 UK
Germany reduces growth forecast
Gerhard Schroeder
Mr Schroeder's government has introduced unpopular measures

The German Government has cut its previously optimistic forecast of economic growth for this year from 0.75% to zero.

And in a further reappraisal of its economic prospects it has revised down its envisaged 2% growth figure for 2004, saying the economy might grow by only 1.5-2%.

However, the outlook still matches widespread expectations that Germany will finally break out of three years of near-zero growth with a moderate recovery next year.

Berlin is trying to boost recovery with a package of economic reforms, including tax cuts, pension changes and merging unemployment benefit and social welfare payments.

Its proposals have been attacked by members of Chancellor Gerhard Schroeder's Social Democratic Party for going too far, and by the conservative opposition for not going far enough.

Many of the reforms require approval by the opposition-controlled upper house of parliament.

Growth 'risks'

Speaking on Thursday, Economy Minister Wolfgang Clement warned that if the government's planned economic reforms were "hampered", growth in 2004 was likely to be at the bottom of the range.

Mr Clement also indicated that moves in exchange rates or oil prices could alter the growth forecasts.

He said: "There are risks to the projections even if the outlook is generally favourable."

Germany's economy contracted in the first half of this year, after stagnating since 2001.

The economy ministry said the zero forecast for this year would be a "black zero", meaning close to zero but slightly positive without saying by how much.

But the ministry said German domestic demand would expand by around 1.5 % in 2004.

Supplementary budget

"The recovery will continue in 2004 and will deepen," a spokesman said.

"An improved international environment, as well as the bringing forward of tax cuts and other government reforms, will make an important contribution."

The government wants to make 15.5 bn euros (10.8bn, $18bn) in tax cuts within a year, as well as its cut backs on social security payments.

But the proposals, the most drastic in decades, have brought the government to near-record lows in the opinion polls.

Finance Minister Hans Eichel is expected to present details of a supplementary 2003 budget based on the new growth forecast.

Mr Eichel has said the German public budget will breach EU limits again next year when it is likely to exceed the limit of 3% of GDP laid down in the European Union's Stability and Growth Pact.

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