Magazine

Germany: Danger: Recession Ahead


German Chancellor Gerhard Schroder scored a political victory on Nov. 16, when he narrowly won a confidence vote in the lower house of Parliament over the issue of sending troops to Afghanistan. But with elections coming next autumn, what he could really use is an economic victory, and that's not likely.

Recession is closing in on Germany. Real gross domestic product posted essentially no growth in the third quarter, for the second quarter in a row. The sharp falloff in key September indicators all but guarantees a contraction in GDP in the fourth quarter.

The problems are both at home and abroad. The global slump is depressing exports and capital spending, as consumers reel from rising unemployment and falling buying power after this year's energy-led surge in inflation.

Consumer spending slowed sharply in the third quarter, and consumer confidence continued to weaken in October. Unemployment last month rose by 27,000 from September, the largest increase in three years.

The industrial sector is especially hard-hit, and business confidence remains at a low ebb. Exports held up for the third quarter as a whole, but they plunged in September, as did industrial production. More important, September manufacturing orders fell a steep 4.1% from August. For the quarter, bookings dropped at a 10.4% annual rate from the second quarter, a bad sign for fourth-quarter industrial output--and economic growth.

In their annual report on Nov. 14, Germany's official economic advisers, a group of academic economists called the "five wise men," forecast German growth of 0.6% in 2001, including a "slight recession," and 0.7% in 2002. Market economists generally agree with the assessment, although the official government forecast, revised down only three weeks ago, projects 2002 growth of 1.25%.

For now, the war is diverting some attention from the economy's woes. But with joblessness expected to approach 10% next year, the economy will be foremost on voters' minds. By James C. Cooper & Kathleen Madigan


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