Waiting for a better Konjuktur

There are upturns and downswings of the Konjunktur, and Hochkonjunktur is the much longed for economic boom. There are even popular songs about the imponderability of the K. word.

The good news: the German banks are fairly optimistic that the Konjunktur - still a tender bud - will not loose its positive momentum in 2005.

In their Konjunktur report issued on 4th October, they put the expected growth for this year at 1.75 per cent and at a similar figure for the next. This is not exactly much to be proud of and not yet the advent of a Hochkonjunktur, but at least a sign of hope after a long period of stagnation of Germany's largest economy.

The bad news: this performance is not strong enough to boost employment. The contrary seems to be the case: the Government confirmed on 5th October, that unemployment stands at a record high for the month of September with 4.44 million (10.2% of Germany's blue and white collar workers), and there are fears that the figure may exceed 5 million in the forthcoming winter season.

In other words: The exclusively export-driven recovery in Germany has not been strong enough to persuade executives to take on more workers. Hence retail spending is subdued as consumers worry about job prospects.

Companies such as DaimlerChrysler and Siemens are insisting on staff working longer hours without wages rising or risk jobs being relocated to lower-cost countries, particularly to EU newcomers such as Slovakia, Poland and Hungary.

'It's a vicious circle', said an economist of the WestLB bank in Dusseldorf, 'we need more employment for consumer spending to rise, but companies are reluctant to hire as long a domestic demand is weak.'

KarstadtQuelle AG, Germany's largest department-store operator, has just announced that it will make some 7,000 of its employees redundant (6.5% of its workforce) and close down 77 of its stores all over Germany. Volkswagen, Europe's largest car manufacturer, intends to axe 5,000 jobs by 2005 to boost its flagging profits.

Consumer spending accounts for more than half of the German economy, while exports make up a third. According to the President of Germany's business lobby association DIHK, Ludwig Braun, at least 2% of economic growth will be needed for a substantial reduction of unemployment.

Germany is facing tough decisions this autumn on the economic front in order to bring about a better Konjunktur. A lot will depend on the readiness to accept and carry through the painful reforms of the labour market recently adopted by the German Parliament.