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Little Growth Seen in Germany's Economy

November 19, 2002|From Bloomberg News

FRANKFURT — Germany's economy, Europe's largest, barely grew in the third quarter, data reported Monday show. And experts said there's little sign of improvement so far this quarter.

That could force the European Central Bank to cut interest rates soon, some analysts said. The bank has been balking at making further cuts because of inflation worries in countries including Spain and Ireland.

German gross domestic product rose 0.3% in the third quarter from the previous three-month period, the same rate as in the preceding two quarters, according to the Bundesbank, Germany's central bank.

Germany accounts for about a third of the economy of the dozen nations sharing the euro currency.

The stagnation of the German economy has contributed to the dismal performance of German stocks this year. The DAX index of blue-chip shares is down 37.6% in euro terms since Jan. 1, far worse than the 21.6% drop in the U.S. Standard & Poor's index.

German business confidence dropped for a fifth straight month and unemployment rose to the highest level in almost four years in October.

The nation's economy will grow 0.2% this year and 1% next year, a panel of advisors to the government known as the "Five Wise Men" said in their annual assessment of the economy.

"What's missing the most is the hope for an improvement, which has always been a prerequisite for stronger investments and employment," the Bundesbank said in a report.

Stagnating German growth is putting pressure on the European Central Bank to follow the lead of the U.S. Federal Reserve and lower interest rates further.

"The weakening outlook for growth this year and next leads us to expect that inflation rates will come down, and the ECB council will have to take that into consideration," Ernst Welteke, an ECB policymaker, said.

The European Central Bank's benchmark short-term interest rate is at 3.25%. By contrast, the U.S. Fed's rate is 1.25%, a 40-year low. The Fed cut its rate from 1.75% on Nov. 6.

Germany is crimping growth among its neighbors. The Bank of France predicts gross domestic product in the euro region's No. 2 economy expanded just 0.4% in the third quarter.

The U.S. economy expanded at a 3.1% annual rate in the third quarter, though growth is expected to slow this quarter.

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