Germany's economy will not grow in 1993, economics minister predicts

February 11, 1993|By Los Angeles Times

BONN, Germany -- Economics Minister Guenter Rexrodt delivered a gloomy assessment of Germany's short-term economic prospects yesterday, predicting zero growth this year as the country struggles to overcome the effects of a global slowdown and the task of rebuilding the former communist east.

"Growth has come to a standstill," he said at a news conference here in which he presented the government's annual economic report. "Almost all the important indicators are going in the wrong direction."

As Europe's dominant economy and the world's fourth-largest, Germany exerts a major influence. For example, the policies of the Bundesbank, the powerful German central bank, to maintain high interest rates to keep inflation in check are viewed by many economists as a key factor in deepening the recessions of many Western countries.

Acting on a series of pessimistic forecasts in recent weeks, the Bundesbank finally bowed to domestic and global pressure last week and cut key interest rates to ease the domestic economic decline and relieve pressure on weaker European currencies tied to the strong German mark within the European Monetary System. The move was applauded internationally and stock markets jumped sharply.

Mr. Rexrodt said yesterday that further interest-rate cuts are vital to revive Germany's sagging economy.

He predicted the country's gross domestic product would probably show no growth at all for 1993, with a decline of up to 1 percent in western Germany offset by a growth of between 5 percent and 7 percent in the far smaller east.

Unemployment would probably rise by another 450,000 nationally as industrial production, investment levels, exports and incoming orders all keep sliding, he said.

Mr. Rexrodt, who took over the key Economics Ministry post only two weeks ago after a scandal toppled his predecessor, Juergen Moellemann, initially avoided using the word "recession," instead talking of a "cyclical downturn." But he then admitted, "A downturn is also a recession."

"Whether it's the deepest of the postwar or not, we don't know, but what we have to do is mobilize our resources so that it doesn't come to that," he added.

The pessimistic outlook is bad news for Chancellor Helmut Kohl's government, whose slide in the opinion polls is almost certain to accelerate as the economy worsens.

While the 2 million-strong civil service union settled last week for a 3 percent wage increase this year in what is seen as an important bellwether accord, such a settlement means that for the first time in more than a decade western Germany's living standards may drop this year. Inflation is expected to run at about 4 percent .

As for eastern Germany, Mr. Rexrodt said the region continues to survive on massive transfers from the west and that in 1992 consumption outstripped production in the region by more than $12 billion.

Unemployment for all of Germany in 1993 is expected to climb from 7.7 percent last year to 9 percent, the report said.

Nearly 3.5 million people are out of work.

Joblessness in the former East Germany will increase to 16 percent, the report predicted.

The German Labor Federation last week called the January jobless figures -- 8.3 percent for western Germany and 15.1 percent for eastern Germany -- "a catastrophic setback in the labor market."

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