German growth likely to slow during 2008


German economic growth is likely to ease during the course of 2008, slowed by weakening industrial activity and impediments to exports such as the strong euro, the Finance Ministry said on Monday.

The economy made a stronger-than-expected start to 2008 but falling industry orders -- for three straight months – along with risks to foreign trade, and weak consumer spending pointed to a slowdown, the ministry said in its monthly report. “The slackening in incoming orders suggests the growth rate could slow during the course of the year,” the ministry said. “The risks to foreign trade (oil price rise, euro appreciation, recession in the US) have also increased.” This view was supported by Germany’s VDMA plant and equipment makers’ association. It said engineering output was likely to slow later this year -- partly due to the weakness of the dollar -- after showing robust growth in the Q1.

Nevertheless, having initially forecast the industry would see a job increase of around 10,000 this year, the VDMA said it now believed 30,000 new positions would be created. Noting the industry was so far unaffected by recent turmoil on markets, the VDMA said it was sticking to a forecast that engineering output would rise by 5% in 2008. Many firms are continuing to enjoy solid growth.

Europe’s biggest carmaker, Volkswagen, said on Monday it expected group vehicle sales to rise 7% in April despite a worsening market environment. The government expects growth in Europe’s biggest economy to slow to 1.2% in 2009 from a projected expansion of 1.7% this year, according to German media reports. However, Germany’s BDI industry federation said on Monday, that growth of 2% was still achievable this year.

Up until now, growth has been strong in 2008. Bundesbank President Axel Weber said last week German GDP had likely expanded by around 0.75% in the first three months of this year. In the final quarter of 2007, the German economy grew by 0.3%. In its monthly report, the Bundesbank said growth was probably fuelled by domestic investment during the January-March period. But it but noted consumer spending was still restrained amid a sharp rise in the cost of everyday items like food.

German retail sales posted their biggest decline in over a year in February as rising food and energy prices made consumers more cautious, overshadowing improvements in the labor market. “The dent to purchasing power from increases in the price of energy and foodstuffs has probably -- together with insecurity with regard to economic expectations -- put a brake on private consumption,” the ministry added. It said rising employment and wages had paved the way for a possible recovery in private consumption later this year, but noted that any surge in inflationary pressure could derail this. German consumer price inflation accelerated to 3.1% in March, while wholesale price inflation hit a 26-year high. (Reuters)
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