Dim Outlook for Growth in Germany

Germany's battered economy is expected to show a modest comeback next year but the recovery is unlikely to cut the dole queues, according to a group of economic thinktanks.

They are predicting the economy - once the power house of Europe - will stagnate this year and improve 1.7% in 2004. The projections from the six thinktanks are slightly more pessimistic than the Berlin government's estimates, which project growth of 0.75% this year and 2% next, but these are likely to be revised down shortly.

The institutes' estimate for 2004 is flattered by "calendar effects"; stripping out the additional working days, the growth projection is 1.1%.

Worryingly for the government, the institutes warned that "a significant improvement in the labour market in 2004 is not in sight given the mute economic recovery". They estimated that the number of people out of work would rise from about 4.39m this year to 4.45m in 2004.

The institutes were cautious about the longer-term outlook. "At the moment it is completely unclear whether the slight pick-up in 2004 could be the start of a longer upswing... or whether 2005 will bring more economic weakness."

One concern is the exchange rate, with the institutes expressing concern that a sharp fall in the dollar against the euro would undermine the competitiveness of German exports.

Chancellor Gerhard Schröder, who is busy pushing his Agenda 2010 reforms through parliament, urged business leaders: "I plead that we do everything in our power not just to realise but to exceed the institutes' forecast and that is not just a matter for government."