BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
BUSINESS OUTLOOK Germany: The End Is in Sight for This Slowdown Germany's economy--and the euro zone generally--clearly slowed in the third quarter. But growth prospects for the coming year remain good, as oil prices and the euro stabilize and as sizable tax cuts kick in. Germany's gross domestic product last quarter rose 0.6% from the second quarter, after averaging just under 1% growth per quarter in the first half. Adjusted third-quarter growth from the year before now stands at 3.4%, and despite a slower second half, 3% for the full year seems likely. The slowdown reflects three things: a tripling of oil prices, a 27% drop in theeuro, and rate hikes by the European Central Bank totaling 2.25 percentage points in the past year. Consumer spending slowed to a near standstill last quarter, as costlier energy and imports drained purchasing power. Also, cooler global demand continued to crimp export growth. The slowdown, however, is far from a recession. The cooler pace of growth clearly continued in the fourth quarter and business confidence dipped further in October--the fifth month in a row. But expectations for the future actually rose, a key sign that businesses think the slowdown may end soon. Business investment picked up last quarter. Plus, early next year, Germany will get a boost from a sweeping five-year tax-reform plan that will cut the tax burden by a total of 2% of GDP. The plan is aimed at increasing employment, improving competitiveness, and encouraging corporate restructuring. Moreover, outside of energy, inflation remains well contained. Consumer prices in November rose 0.2% from October and 2.5% from the year before. While that's greater than the 2% euro zone target, core inflation excluding energy and food is about 1%, and the rise in overall inflation appears to be topping out, as energy prices stabilize. Economists generally expect growth in 2001 to match this year's 3% pace, somewhat above the economy's long-term trend of about 2.5%. If so, joblessness will continue to fall. BY JAMES C. COOPER & KATHLEEN MADIGAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Germany: The End Is in Sight for This Slowdown CHART: German Growth: Cooler, but Not Cold INTERACT E-Mail to Business Week Online

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