Economic situation report of Süddeutsche Zeitung - Country without momentum
By Michael Bauchmüller
You could nearly feel sorry for Hans Eichel: Helpless in view of increasing budget gaps and shrinking tax receipts, he sticks undaunted to optimism. The economy does grow, says Eichel, and refers to recent numbers of the statistic federal office. And indeed: For the first time since a long time the gross domestic product surprises with unexpectedly strong growth. But: the German economy is not exactly in a swinging mood. The GDP grew by weak 0.4 per cent in the first three months in the comparison to the previous quarter. In France however it grew by 0,8 per cent.
The shelves are full, the price increases are bearable, millions of people wait to be able finally to work again - only the demand is missing. The overall economic demand, so say the economy books, is the sum of following single demands: private households, the enterprises, the State, the rest of the world. So where's the problem now?
The households: The private households contribute scarcely 60 per cent to the gross domestic product - for goods and services, which offer others. In Germany however the consumers do not play continued also, instead they put their money on the high edge. Between 2000 and 2003 the rate of saving of the households rose around one point to 10,8 per cent - economists expect that it will be because of the end of the yearly with eleven per cent.Uncertainty over pension and health insurance, fear of the job loss and disconcertion in view of constantly new reform suggestions do not increase the straight consumer desire. Numbers of the retail trade show the drawback of the savings joy. In the first three months the conversions of the dealers sank nominally by 0,9 per cent. They hope now, like already in the previous year at this time, for the second half-year.
However the prospects are somewhat better this year. Due to tax revision the households have again a higher real income available in this year for the first time since 2001. Whether they spend it will depend however on an improvement of the job market - and on the confidence in the policies. Debates over increases in value added tax or the abolishment of home owners' benefits do not help raise the latter.
The enterprises: Situation and trends improve - and let hope for rising investments, for the "demand" of the enterprises, grow. After two downs the Ifo Climate index improved again clearly and lies now at 96,3 points - after 95,4 in March. Meanwhile also a recovery in investments is appearing. The capital goods orders rose in the first quarter by 0,4 per cent on quarter to quarter basis. Due to the restraint of the past two years many enterprises are now forced to replace old plants, the growth might continue. One source of concern is again and still the building industry. At the end of the last year it profited from the restriction of jhome owners' benefits, however it broke down again in the first quarter of this year: The building investments dropped by five per cent.
How strongly business investments will be able to animate the economy will depend considerably on their situation. Orders come - in view of weak internal demand - predominantly from abroad. Thus the situation concerning orders remains for the time being unstable.In March only machine construction booked an order plus. The index of the entire incoming orders however sank by 0,7 per cent (deseasonized) in relation to the previous month. And the industrial production broke down for real: around 2,3 per cent in relation to an already weak February. In view of the continuous ups and downs the prospects for the job market are also not exactly rosy. Experts expect a stabilization. New jobs in considerable numbers, however, are not in sight. Consequence: see above.
The state: the economy does not need to hope for impulses from the public hand In view of overflowing deficits the federation, the countries and the municipalities are not in any shape for extra purchases. Household consolidation and stability pact will ensure that this stays this way. However, where the state via social systems indirectly provides demand, there will be further reductions. The pensions rise hardly any more, receivers of unemployment benefits and social welfare assistance receive less, the services of the health insurance companies are getting rolled over onto the insured. In view of empty piggy banks there may be no alternative. The exculpatory effect of tax reductions, however, is neutralized thereby. Consequence: see above.
The rest of the world: The help for German economy is found everywhere, just not in its own country. The weak growth of the first three months is due almost exclusively to the export. In March alone exports rose by 16,6 per cent in relation to March of the last year.time The high-altitude flight of Euro was stopped just on time: In USA a stable upswing is taking shape. On a base of numbers comparable with the European Union countries the US economy in the first quarter grew 4.9 per cent in relation to the period last year. The economy of China asserts its role as the new work horse of the world economy by growing this year by estimated 8.3 per cent; Japan is stabilizing. The German economy research institutes estimate, that the global world trade will grow 9,5 per cent in 2004 - and the export will animate.
However the dark side of world-wide growth is also showing up: Important raw materials are getting more expensive, first of all oil. North Sea Brent Crude costs meanwhile more than 38 dollar per barrel. For comparison. in the war year 2003 the average price was about 28.81 dollar. The effect can be seen at German gas stations and in the statistics.The prices in Germany in April were 1,6 per cent higher than one year before - the highest rise the last two years. On top of that higher gasoline prices will push other prices to rise. Consequence: see above.
View: Because it's the consumer who holds the keys to the upswing, Hans's Eichel would probably, if he could, personally drag out Germans to shopping. If they spend again more money, they will create jobs, that on their own will again energize the consumption, lead to tax receipts - and so on. The more however the midyear approaches, the more clearly a constant of the German economy shows up: The upswing will come next year. It was like this in 2003. And also the year before it.
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