German economic survey shows sinking business confidence

The so-called five wise men appointed by the German government as their main consultants on economic affairs have slashed expectations for growth in 2001 to a meagre 0.7 percent. In their annual report published in mid-November they have forecast unemployment rising to almost four million. As a worst case scenario, the wise men envisage a 0.5 per cent fall in GDP, if the US economy does not show any improvement.

The findings present a gloomier picture even than Chancellor Schroeder's forecasts. Finance minister Hans Eichel said in October that GDP would rise by 0.75 per cent this year and by 1.25 per cent in 2002. In his view, growth will reach a low point this winter before accelerating markedly in 2002.

According to a survey of more than 25,000 companies in Europe's biggest economy conducted by Germany's chambers of trade & commerce, nearly one third of those questioned said they expected the economy to worsen, while just over half predicted stagnation. On employment, 29 per cent said they expected to cut jobs, while 61 per cent forecast their work forces would remain stable. Only 10 per cent said they intend to create new jobs.

The losers in the labour market are first and foremost unskilled workers and elderly employees. However, well-trained and experienced staff are faring better. German industry cannot do without their expertise and know-how - unless a severe recession hits the economy. Bank employees sleep particularly badly these days. All the financial institutions will be shedding staff heavily next year. Even the showpiece industries are coming under pressure: the car industry, machine manufacturers and the IT business.

Company Job cuts
Siemens- 9,200
Deutsche Post - 7,500
Dresdner Bank - 6,300
Deutsche Bahn - 6,000
BASF- 4,000
Commerzbank - 3,000
Walter Bau / Dyckerhoff - 2,600
Opel - 2,500
Adtrans- 2,500
Deutsche Bank - 2,500

Almost daily, spokesman of trade & industry call on the German unions to moderate wage claims in the forthcoming collective bargaining rounds, warning that inappropriate pay rises would lead to even more job losses. The German government is definitely in dire straits these days, since the shrinking economy will yield reduced tax revenues next year. Calls are being made on the cabinet to rethink planned tax increases on energy, cigarettes and some insurance policies next year, which, it is feared, would further reduce the chances of any improvement in domestic demand in 2002.

The five wise men have encouraged the government of Herr Schroeder to step up their efforts for reforming the education, health and pension systems to achieve a much-needed higher flexibility in the labour market. Gloomy as the outlook for 2002 may be, most economists seem to share the government's optimism at least in one respect, namely that business would benefit from low inflation and rising foreign demand for German goods.

Meanwhile, the German carrier Lufthansa says it needs 30,000 more passengers and around $8.9 million per day. And the difficult international business conditions following September 11 have prompted Lufthansa to pull 43 aircraft so far. For September alone, the airline suffered a loss of $158 million after nine months of positive results. Lufthansa personnel have signalled their full co-operation in an austerity programme. And the board of Lufhansa, along with 1000 managerial staff, has set an example that has caused quite a stir in Gemany. They will do without 10 per cent of their basic salaries.

In this climate German exporters can be expected to redouble their efforts in the Middle East, although for the moment nobody has much to say while the international emergency persists. Most of them insist that it is business as usual, despite the unusual circumstances.