Germany to cut forecasts for economic growth to 0.25%

The German government is set to revise down its economic growth forecast for this year to no more than 0.25 per cent, in recognition that the economic upturn will be weaker than earlier expected.

The government is set to reduce its projection of 0.75 per cent gross domestic product growth to either 0.25 per cent growth or zero growth when figures are presented on October 23rd, officials in Berlin indicated.

There was also speculation yesterday that the government would lower its projection for next year, currently at 2 per cent, although this was seen as a more politically sensitive move.

Finance Minister Mr Hans Eichel has linked the 2 per cent projection with the government's structural reform plans and with its target of reducing its budget deficit to below 3 per cent of gross domestic product next year.

There is widespread expectation among economists that, next year, Germany will again exceed the 3 per cent threshold in the EU's stability pact, but Berlin is unlikely to be willing to concede this in the near future.

Europe's largest economy contracted by 0.2 per cent in the first quarter and 0.1 per cent in the second quarter. One official commented that, given those figures, the revision on October 23rd would "certainly not be in an upwards direction".

Mr Eichel said on Tuesday that he expected the economy to have grown slightly in the third quarter. The economy grew 0.2 per cent last year.

Mr Wolfgang Clement, Economics and Labour Minister, warned recently that growth would be "little more than zero per cent", without giving a specific figure. Several of Germany's leading economic institutes have predicted stagnation or zero growth for this year.

Lower-than-expected economic growth this year would increase Mr Eichel's severe budgetary problems. He is due this month to present a supplementary budget for 2003 to take account of higher borrowing requirements and lower-than-expected tax revenues.