Two more leading German institutes wound back their 2005 economic growth forecasts on Tuesday and the European Central Bank came under pressure to help stem the rise in the euro which is damaging German exports. Munich's Ifo and Hamburg's HWWA became the latest to pare their predictions and five of the six top economic think tanks have now trimmed gross domestic product (GDP) growth forecasts for next year.
Most blame the slide of the dollar against the euro, which is eroding the export growth that has helped Europe's biggest economy shrug off three years of stagnation. Domestic demand is not picking up fast enough to compensate for the drop-off in sales abroad.
Hans-Werner Sinn, the president of Ifo, said at a news conference in Munich the time had come for the ECB to intervene in foreign exchange markets to halt the euro's ascent against the dollar.
A weaker US currency risks hurting export earnings in Germany and the rest of the euro zone by making goods and services produced there more expensive in dollar terms and denting the real value of eurozone companies' overseas income.
Asked whether the ECB should intervene, Sinn said: "It can do it and in my opinion it should. I believe the time for it has come."
Ifo said the current level of ECB interest rates was still providing a boost to the eurozone economy and it expected the central bank to leave its key rate unchanged at 2 percent through next year.
German GDP will expand by just 0.9 percent in 2005, the HWWA said, while Ifo predicted growth of 1.2 percent. That compared with a 1.5 percent forecast published jointly by the six institutes in October. Both Ifo and HWWA expect 2004 growth of 1.7 percent.
"Global economic conditions remain relatively favourable for the German economy, though the picture should only brighten gradually," said Ifo's Sinn.
"Investment will strengthen, but clearly less than in previous upswings, and private consumption will pick up somewhat," he added. "Exports will still grow about half as fast as this year."
The HWWA also said it expected export growth to slow next year, with domestic demand not picking up enough to compensate.
"All in all, 2005 will not provide any reason for euphoria in Germany," the institute said.
Adjusted for fewer working days next year, German GDP will likely expand by 1.4 percent in 2005, after adjusted 2004 growth of 1.2 percent, Ifo said.
Economy Minister Wolfgang Clement at the end of October said the government expected Germany's GDP to grow by 1.7 percent in 2005, after 1.8 percent this year. On Tuesday, he said he was sticking to those predictions.
Clement said last week a rise in Ifo's closely-watched gauge of business confidence in December confirmed the economy was "back on the path of growth" and signalled the recovery was broadening and increasingly underpinned by domestic demand.
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