German economists raise 2010, 2011 growth outlook

AP News
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Posted: Oct 14, 2010 11:33 AM
German economists raise 2010, 2011 growth outlook

The German economy will grow by 3.5 percent this year and by 2 percent in 2011, when unemployment is expected to fall to a 19-year low, leading think-tanks said Thursday.

The new projection for this year is more than double the forecast of 1.5 percent that the five institutes gave in April. The 2011 projection for Europe's biggest economy is somewhat better than the 1.4 percent they predicted then.

As the economy recovers, the number of people out of work should average less than 3 million for the first time since 1992, the forecast said, with the jobless rate at 7 percent.

It also predicted that Germany will get its budget deficit back below the maximum 3 percent of gross domestic product stipulated by eurozone rules next year already, putting the shortfall at 3.8 percent in 2010 and 2.7 percent in 2011.

The government so far has predicted a deficit of 4.5 percent this year.

Strong export growth helped Germany to quarter-on-quarter economic growth of 2.2 percent in the second quarter. That triggered a slew of forecast revisions from economists.

While the pace is expected to slow amid a cooling global rebound, growth is expected to remain healthy, and rising consumer confidence has fed hopes of stronger domestic demand.

The government is due to update its own growth forecast next week. Its existing projection, also from April, is for growth of 1.4 percent this year and 1.6 percent in 2011.

The economy shrank by 4.7 percent last year, easily its worst performance since World War II.

Thursday's forecast "shows impressively that Germany is on the right track," Chancellor Angela Merkel told reporters.

"The growth figures for this year are impressive ... but also (the figure) for next year shows that this can become a lasting upswing," Merkel said, highlighting prospects of stronger domestic consumption.

Addressing possible risks from developments abroad, Merkel pointed to the need for "a good stability culture on budgets and finances not just in Europe, but this should be practiced worldwide."

World leaders pledged in June to halve government deficits in richer countries by 2013. "I think we must take this agreement seriously," Merkel said.