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Eastern German Economy Likely to Grow in '92

October 22, 1991|TAMARA JONES | TIMES STAFF WRITER

BONN — Eastern Germany's troubled economy appears to have hit its low point a year after unification, but a "widespread, powerful upswing" is not yet in sight, the nation's leading economic research institutes said Monday.

The report by the country's "five wise men" forecast strong growth for the eastern economy next year but noted that unemployment and inflation will worsen somewhat.

Construction, service and retailing are enjoying an upswing, the economists said, but agriculture and heavy industry continue to lag.

"This is not the widespread, powerful upswing hoped for in the east," said Willi Leibfritz, chief economist at the Munich-based Ifo Institute for Economic Research. "At the same time, though, our opinion is that there's no cause for resignation."

Added the report: "The descent of the east German economy appears to be stopped."

Although encouraging, the report by respected economic institutes in Munich, Kiel, Essen, Hamburg and Berlin was more guarded than government assessments of the eastern economic trend.

Faced with unification's staggering cost, Chancellor Helmut Kohl's government has been trying to encourage more foreign investment in the east, but legal disputes over property ownership have dampened enthusiasm.

Despite the report's overall optimism, the economists said that 450,000 more workers will probably lose their jobs in the east next year, pushing up the number of unemployed to 1.5 million. Nationwide, unemployment is expected to hit 3.1 million in 1992.

Unemployment in the east now is 12.1%--about double what it is in the west. The figures do not take into account the eastern region's hidden unemployed, an estimated 1.4 million people working part time or on government-subsidized work programs.

The report by the five institutes projected 10% real growth in eastern Germany's gross national product next year compared to a 19% decline this year in the face of mass unemployment and factory closures. The closures are expected to continue as the government Treuhandanstalt agency culls out non-competitive companies from more than 7,000 that were owned and mismanaged by East Germany's corrupt Communist regime.

Construction has been booming in the east with dilapidated apartments and factories being renovated and roads being being built or repaired. But Treuhandanstalt closures have hit industry hard, and converting the east from soft brown coal to cleaner fuel has displaced miners.

In western Germany, the GNP is expected to grow by only 2% in 1992, after a 3.5% expansion this year. The report blamed a tapering-off of consumer demand in eastern Germany, sluggish exports and a listless global economy for the decline.

"German unification led to a boom in western Germany, (but) to a dramatic collapse of production and employment in the east German economy," Leibfritz told a news conference here. "The picture has changed in the meantime, in the west as well as the east. In the west, the boom came to a halt in the spring."

He said the economists do not believe that the "current stagnation" will lead to a recession. High interest rates are expected to give a boost to the German currency, the deutschemark. The economists said prices will also rise in the coming year, resulting in an inflation rate of 4% compared with 3.5% this year.

The German government issued a statement Monday saying the report "makes it clear that a dynamic upward development is projected" for the battered eastern states.

Times editorial assistant Ulrich Seibert in Bonn contributed to this report.

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