Tue, Nov 11, 2003 - Page 9 News List

German leader gets more room to enact agenda

Signs that the economy is recovering are expected to pave the way for Schroeder's ambitious and unpopular reform plans

DPA , BERLIN

Germany's opposition-controlled upper house of parliament's decision Friday to delay Chancellor Gerhard Schroeder's key tax and job reforms comes as signs emerge that the nation's economy has begun to kick back into life.

After slumping into recession during the first half of the year, official data due out this week is forecast to show Europe's biggest economy as having turned the corner during the third quarter and consequently bringing to an end a three-year economic slump in the nation.

Evidence that the country's economy is back on a growth path is likely to ease the pressure on Schroeder as he battles to push forward with his ambitious and deeply unpopular reform plans.

A crop of data released in recent weeks has pointed to Europe's biggest economy ending the year on a positive note and as a result giving Schroeder something of a boost as he attempts to convince a wary electorate that trimming welfare benefits and relaxing strict labor market rules will help to shore up growth.

But as output data released Friday demonstrated Germany's economic rebound should not be taken for granted with production in the country recording a surprise fall in September of 1.2 percent.

It was the second consecutive monthly fall in German output with analysts having forecast a 2 percent increase in September. In releasing the data, the Ministry of Labor and Economics said summer holidays during the month had hit production.

Indeed, while describing the production figures as disappointing, Ralph Solveen, economist with Germany's Commerzbank said he could not rule out that the data would be revised up to a small plus in the second assessment of the figures which is due out later in the month.

Solveen stuck to his assessment that economic activity in the fourth quarter would brighten further.

Furthermore, economists are predicting that official growth data due out Thursday will show the German economy as having expanded by about 0.2 percent quarter-on-quarter during the third quarter. This follows two quarters of negative growth in Germany.

In addition, the latest production data followed the release of a batch of figures last week indicating that German factory orders expanded at a faster than forecast 0.9 percent in September and that Schroeder's labour market reforms were starting to bite and helping to wind back unemployment numbers.

In seasonally adjusted terms, German unemployment declined by a bigger-than-expected 12,000 last month to record its second consecutive monthly fall.

As a sign of the changes unleashed by the government's labour market reforms, figures also released last week showed that since April more than a million low paid so-called mini-jobs, which pay up to 400 euros (US$457) a month and are exempt from social insurance contributions, have been created.

More importantly, the raft of positive data is further confirmation that the hard economic data is now catching up with the steady stream of upbeat economic sentiment surveys for the country that earlier in the year began pointing to a pickup by the end of the year.

The release of the data came as further signs emerged of the battle ahead for Schroeder in bringing into law key elements of his economic reform agenda with the opposition-controlled upper house of the German parliament (Bundesrat) effectively delaying the introduction of legislation for planned tax cuts totalling 15.6 billion euros (US$17.8 billion) and reductions in unemployment benefits.

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