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To: Jorj X Mckie who wrote (43434)	7/3/2003 5:26:50 PM
From: MulhollandDrive	Respond to of 57110

no need to concern ourselves with deflation risks here...we're not japan, and most certainly not germany <g> business-times.asia1.com.sg BERLIN Published July 2, 2003 Germany faces recession: think-tank EUROPE'S largest economy, Germany, could shrink this year for the first time since 1993 and the European Central Bank should cut rates to fight deflation, Germany's DIW think-tank said yesterday as new data dampened recovery hopes. 'Germany is in an economic crisis,' the research institute said in its summer report which slashed its forecast for German growth to minus 0.1 per cent from a previous 0.6 per cent rise. It said there is no prospect of a significant turnaround next year. 'Growth will be 1.3 per cent but 0.6 per cent of that will be because of the effect of extra working days.' Indicators out yesterday added to the gloom about Germany's economic prospects with retail sales slipping in May, dampening hopes for a consumer-led recovery, and plant and equipment orders fell by 3 per cent year on year in May. The DIW said Germany met all the conditions for a sustained fall in prices, with price growth below one per cent and major overcapacities because of the long period of stagnation. It called on the ECB to act to counter deflation. Chancellor Gerhard Schroeder also indirectly urged the ECB to consider rate cuts. The ECB cut its benchmark rate by 50 basis points earlier last month to a record low of 2 per cent. In a speech in Berlin, Mr Schroeder said that the independence of the ECB was 'self-evident', but added: 'They must answer the question of whether they have already done enough for stimulating growth according to their own responsibilities and without any influence from outside.' The DIW said another 50 basis point rate cut was needed. 'While we don't expect a deep recession like in 1993, in the last three years all economic dynamism has been extinguished. Stagnation rules. The biggest danger resulting from the long period of stagnation is deflation,' the DIW report said. The DIW said Mr Schroeder has plan for sweeping income tax cuts next year, agreed by his Cabinet. It urged the government to stick to plans to consolidate the Budget and cut state subsidies. 'However, bringing forward the tax reform will not in itself kick-start economic recovery, even if the financing for the tax cuts through cutting subsidies comes into effect later.' The institute said it expected the German Budget deficit to hit 3.7 per cent of gross domestic product this year, breaching the European Union limit of 3 per cent for a second year in a row. But it saw a 2004 deficit of 3 per cent of GDP. - Reuters