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German economy to grow minimum 2% in 2007, Deputy Minister says

Analysis

The German economy will expand at least 2% next year, Deputy Economy Minister Bernd Pfaffenbach said today, suggesting the government will raise its official forecast of 1.4% growth in January.

The increase in Germany's main value-added tax rate to 19% on January 1 from 16% won't harm the economy, Pfaffenbach told reporters at the German government's first information technology summit in Potsdam, near Berlin. „Nobody expects a slump in the economy as a result of the VAT increase,” Pfaffenbach said. Asked whether the economy will grow at least 2% in 2007, Pfaffenbach said „yes,” without elaborating. Four of Germany's six leading economic institutes raised their forecasts for 2007 last week, with only the Kiel-based Institute for World Economics matching Pfaffenbach's optimism. The government on October 20 said the economy will grow 1.4%, raising its outlook from 1%. „The increase in VAT is not a danger any more; it has already been absorbed," Pfaffenbach said. „Retailers themselves are saying it's not a big problem.” Two of the economic institutes that provide twice-yearly reports for the government, Munich-based Ifo and Essen-based RWI, on December 14 raised their 2007 growth forecasts to 1.9%. The IfW two days earlier said growth will reach 2.1%. Pfaffenbach's ministry is expected to update its 2007 forecast in the government's annual economic report next month. (Bloomberg)

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