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European-American Topics - Business - German economy

Cloudy with a few sun breaks for the German economy
By Kai Sandvig
Posted: February 2006

Gazing into its future, the world’s third largest economy behind the US and Japan, seeks to gain some momentum and remain stable in 2006 forecasts.

“Companies are looking a little more forward than backward,” the German Embassy’s Labor Counselor, Michael Mersmann, says about German companies.
According to a report released by Deutsche Bank, projections for the German economy in 2006 indicate steady growth throughout the year, but also predict a growing parallel between German and US employment woes as competition from developing nations expands to unskilled labor sectors. The report also highlights economic irony as production and export totals are set to increase, yet remain historically sluggish.

“There is no big job creation,” says Mersmann, “Automobile industries will not hire, but will not fire people either.”

Forecasted to increase in production are high-end retail goods, such as the automobile and tech industries. Expected production growth by each sector includes a three percent growth in the automobile and chemical industries, alongside a four percent growth in Germany’s tech sector, according to the report. In contrast, German textile production will remain sluggish and stands to lose three percent of its productivity, mainly to foreign rivals.

Managing Director of Deutsche Bank’s research wing, Dr. Norbert Walter, believes structural reforms to the German economy have left their imprint and now help the economy steadily progress, but have done little to help improve both skilled and unskilled segments of the economy.

“Construction will continue to do poorly,” Walter writes in an email, “Sunset industries in the producing sector with high labor content and little value added will do poorly, too.’”
Even amid a more conservative German consumer, and contemporary high oil prices, Mersmann believes the change in leadership gives the German populace a new perspective on their future and a feeling of economic content.

“In the last two years foreign investors have been active in a number of sectors,” Walter writes.
The upbeat attitudes come from a large amount of foreign investment now emanating into the country. Conglomerate pharmaceuticals, such as Proctor & Gamble, have seized on the research and development portion of the German chemical industry, and have invested their money and energy into the country.

The Deutsche Bank figures corroborate these predictions, and state inflation is set to peak in early 2006, while an ease in the unemployment rate agrees with the idea that steady foreign investment helps spur job creation.
Mersmann concurs with Walter’s estimates and Deutsche Bank’s figures. He believes that around $100 million in American foreign investment will flow into Germany during 2006. This translates into more foreign ownership in which most German companies were not once open to, but may help alleviate the economic stagnation.
“Foreign investors are flooding the German real estate market these days,” Walter writes. In Germany, the hope is the floods continue to swell.


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