Growth surge in German economy!
Update from the Wall Street Journal
"The upswing has grown wings. Growth in the last quarter was the strongest in 10 years. Germany has digested the financial and economic crisis faster than expeceted" Minister Bruederle said
BERLIN (Dow Jones)--Germany's economy could grow clearly above 2.5% this year, the country's Economics Minister Rainer Bruederle said Thursday, adding that the recovery will deliver an upswing in employment.
"The growth pace will stabilize in the autumn, but gross domestic product could come in at an annualized rate of clearly above 2.5% growth. This is almost twice as much as what we had forecast at the beginning of the year," he told lawmakers in the lower house of parliament during a debate on the 2011 budget.
His comments come after various economic research institutes and the European Commission raised their growth forecast for Europe's largest economy in recent days, with the Commission Monday forecasting growth of 3.4% for this year.
The German economy posted quarterly growth of 2.2% in the second quarter.
The government is due to revise its 2010 growth forecast Oct. 21 and an upward revision from the 1.4% projection given in April is expected.
"The upswing has grown wings. Growth in the last quarter was the strongest in 10 years. Germany has digested the financial and economic crisis faster than expected," Bruederle said. "Of course there are risks, but we have scraped through... Optimism is justified."
He said that Germany is once again economically "the number one" in Europe and the upswing is export-driven. He warned, however, against high wage increases and said pay rises should depend on the profit situation of individual companies.
Pointing out the resilience of Germany's labor market, Bruederle said employment has risen since summer 2009 and unemployment is steadily declining.
"A drop of unemployment to below 3 million is reachable in autumn this year," Bruederle said. He stressed that what abroad has been called Germany's "job miracle" is better than any fiscal stimulus program that the government might implement because more employment boosts domestic demand.
With these comments, he rejects criticism from abroad, including from the U.S., which has called on Germany to ease budget consolidation efforts and instead do more to stimulate its economy. He also rejected calls from Germany's opposition parties for higher taxes or reintroducing wealth tax, saying this would choke off German growth dynamics because many small- and medium-sized companies in Germany are taxed under the income tax rate scheme.
"We have decided that the crisis measures will now gradually phase out," Bruederle said. He added this means that the government will also gradually withdraw support for the financial sector, including for Commerzbank AG (CBK.XE). The government has provided guarantees and capital for struggling banks.
The lower house's budget debate is traditionally used as a general verbal sparring between the center-right coalition and the center-left opposition parties.
The center-right coalition's budget targets EUR57.5 billion of new borrowing next year and a 3.8% reduction in spending, with overall spending penciled in at EUR307.4 billion compared with EUR319.5 billion this year.
It is also in the process of implementing a EUR80 billion austerity package for the coming four years, aimed at reducing the government's budget deficit. Some measures, such as a nuclear fuel rod tax, an airline ticket tax and a higher tax for energy intensive companies, are part of a supplementary bill to the 2011 budget.
-By Andrea Thomas, Dow Jones Newswires; +49 30 2888 4126; andrea.thomas@dowjones.com