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November 2003 - Nr. 11


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No Growth w/o Reforms
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VW Designer

No growth without reforms,
say economists

  TWIG - Policymakers must tackle Germany’s structural problems if the country’s economy is to pick up speed in 2004, said the head economist at one of Germany’s largest banks.

Dresdner Bank’s chief economist, Michael Heise, Tuesday (October 14) urged politicians to break the reform deadlock that is hindering German growth.

"Without reforms, stagnation threatens to set in," he said at the presentation of the bank’s economic forecast for the coming year.

Heise’s comments came as the government seeks parliamentary approval for its ambitious program of structural reforms, known as "Agenda 2010."

Designed to steer the German economy out of stagnation, Agenda 2010 includes measures to cut taxes, slim the generous welfare state and loosen rigid labor market regulations — helping to create new jobs by lowering the non-wage costs companies must budget for social payments.

Heise expects the German economy to grow by a respectable 2% next year — but only if the government wins parliamentary approval for its plans.

Economists at Dresdner expect growing domestic demand to drive economic growth over the coming year. They say that tax cuts putting more than 15.6bn Eur ($18.3bn) back into the pockets of German consumers will likely result in a 3% increase in private household disposable income, after lackluster increases of 1.9% in 2003 and just 1%, a post-war low, in 2002.

The German economy has been teetering on the brink of recession with near-zero growth for the past three years.

The bank’s scenario assumes an annual average oil price of around $28 per barrel as well as a gradual rise of the euro against the dollar. Analysts expect the euro to buy $1.21 at mid-year and $1.25 by December 2004.


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