German economy regains vitality, worries remain
BERLIN, Dec. 22 (Xinhua) -- The German economy has witnessed a robust recovery all through 2010. But its prospects are unlikely to remain as good because a number of factors may work against it.ROBUST RECOVERY
The German economy is expected to grow 3.7 percent in 2010 and 2.2 percent in 2011 with a lower budget deficit and unemployment, said a report by the government economic council composed of the so-called "five wise men."
This is the highest growth rate for Germany after the country's reunification in 1990. Apart from a rising export, the growth was also supported by a surging domestic demand, which performed poorly in the crisis.
"In addition to exports, domestic demand is growing into another engine of the German economy," Economic Minister Rainer Bruederle said in October.
In November, the Federal Statistical Office (Destatis) also attributed the growth to domestic household and government consumptions as well as capital investments.
In December, the country's business confidence rose to a new record high, thanks to high expectations for the retail and wholesale sectors.
"The retailers have assessed their current business situation as very good," said Hans-Werner Sinn, president of the Ifo Institute, which published the business climate index in the country every month based on about 7,000 survey responses of firms in manufacturing, construction, wholesaling and retailing.
"In addition, they are more optimistic about the next six months than in November," Sinn said.
Meanwhile, Kai Falk, director of the communication department of German Retail Federation (HDE) told Xinhua last week that, according to their latest survey, "retailers are very optimistic that Christmas 2010 is going to be a very good one."
"In November and December we expect growing sales are 2.5 percent compared with the same period last year. The whole year growth will be 1.5 percent," Falk said. As retailing is a relatively stable business in Germany, a 1.5 percent growth is a very good figure, he said.
According to HDE's statistics, during the first decade of the century, the range for German retailing growth is between minus 2 percent to 2 percent. In 2009, German retail business suffered a 2 percent fall, the worst since 2000.
GROWTH PROSPECT DARKENED BY MULITPLE FACTORS
Despite the pronounced optimism, potential risks may still hinder further steady growth in the country.
The index for German consumer confidence for January based on 2000 interviews has declined slightly compared with December, ending its half-year "unbroken sharp growth", GfK, a leading market research company, said Tuesday.
"After 5.5 points in December, the overall indicator is forecasting a figure of 5.4 points in January 2011," GfK said.
Declined economic expectations also caused a moderate downturn in income expectations and consumers' propensity to buy, GfK said.
The strong recovery so far has not yet fully compensated the losses of production incurred during last year's recession, the Kiel Institute for the World Economy (Ifw) said last week in its latest forecast.
"With a slower growth pace in the upcoming quarters, we expect the catching up-process (back to the pre-crisis peak production volume) to last until mid 2011," and "any form of financial turmoil might abruptly interrupt this process," Ifw said.
The institute is also concerned about the sovereign debt trouble in some countries, saying "if their sharply risen public debt burden spills over to the still vulnerable financial system, then major harm to the real economy is very likely."
Besides public debt, analysts worry some other factors might also drag down the German economy.
Deutsch bank's former chief economist Norbert Walter told Xinhua in a recent interview that he was worried that currency wars, trade wars and protectionism could wreak havoc.
"I would not rule out that the high growth rate of emerging countries translate into high commodity prices, which will imply that inflation is not as moderate in 2011 as it was in this year," he said.
So monetary authorities cannot continue to pursue the low interest rate policies, he said.
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