Growth in Europe's biggest economy could beat forecasts for this year and although 2009 will be weaker there should be no talk of recession, German Finance Minister Peer Steinbrueck said on Saturday. In an interview with Welt am Sonntag Steinbrueck warned against creating nervousness by talking about the prospects of recession in Germany.
"It is possible that the conservative forecasts for 2008 will be exceeded slightly. And of course 2009 will be weaker," he said according to a transcript of the interview. "But please, not this typically German talk of recession. We have every reason not to make people insecure," he said, adding: "We are not in a situation in which we have to develop crisis scenarios."
The finance ministry expects German growth of 1.7 percent this year, down from 2.5 percent last year. It has forecast expansion of 1.2 percent for next year. But economists are getting increasingly worried about the outlook. The head of Germany's IW economic institute told Bild am Sonntag newspaper declining orders and production pointed to a dampening of the economy and he said he expected no significant drop in unemployment next year.
"In 2009, we will only be able to grow by about 1 percent," IW Director Michael Huether told the paper. Steinbrueck also reiterated comments he made last month about ECB interest rate policy. The remarks had caused a stir because he appeared to be warning of the impact on growth of a rate increase shortly before the central bank was expected to, and in the event did, raise rates. "I was pointing out that the ECB has to consider that interest rate hikes can have a very ambivalent effect in light of existing economic risks - I wasn't say anything more than that. It is obvious," Steinbrueck told the paper.
Steinbrueck also reiterated his desire to introduce better regulations to boost transparency on financial markets. He said there was a change in mood from the United States, especially among managers, which has traditionally shown reluctance.
Asked about the possibility of nationalising any bank which hit problems in Germany, Steinbrueck said he had no basic interest in having a bank on the government's books, although each case should be treated on its own merits. Rescue pacakges for German corporate lender IKB and worries about the US banking sector have raised qusetions about state aid in Germany.
Steinbrueck also ruled out introducing tax breaks to reduce the impact of surging energy prices on consumers, as demanded by some of his Social Democrat colleagues. He also rejected calls by some members of Bavaria's conservative Christian Social Union (CSU) to bring back a tax break for commuters which the government cut last year. "If I start subsidising energy consumption when oil costs $140 per barrel, what will I do when it gets to $150 per barrel or $160 per barrel?" he asked.
"We cannot avoid being more careful with energy. Any short-term answer to this long-term challenge is insufficient. Politicians must show continuity and stick to the right course," Steinbrueck said. Economists are worried that high oil and commodity prices will feed through into wage deals and other goods, prolonging a rise in inflation which they say could affect growth.