Dire warnings from Germany's Five Wise Men

Bert Rürup, chairman of the panel, said that more economic reforms would be needed in the next four years to accelerate Germany's recovery.

The panel expects an economic growth of merely 0.8 per cent this year and 1.0 in 2006, which is not enough to bring down the unacceptable high rate of unemployment in the country. The jobless figure will probably be reduced by only 90,000 next year, still leaving 4.8 million men and women out of work at the annual average.

There is a striking discrepancy between a falling domestic demand and the ongoing export boom, which is forecast to surge by 6.3 per in 2006 cent after 5.5 per cent this year.

Coalition finalised

Meanwhile, Germany's Christian Democrat and Social Democrat grand coalition partners, who are under pressure to finalise their coalition agreement by 11 November, pledged to cut non-wage labour costs to spur job creation. The move is designed to appease growing public protests of planned tax rises.

Mr. Rürup has warned that the intended VAT increase from currently 16 per cent to 19 per cent, if used solely to consolidate Germany's unsecured budget, would severely restrain consumer spending and consequently slow down the urgently needed domestic growth.

In strange contrast to the gloomy forecast of the 'Five Wise Men', German business is reported to be quite upbeat about the near future.

The influential half-yearly survey of business confidence released by the IFO Institute in Munich showed a rise by 2.7 points in October to 98.7 points, its highest level in five years. This was in fact the largest monthly increase since November 1999.