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The Week in Germany: Business and Technology October 20, 2006 Wirtschaftswunder: Germany Economic Recovery Continues Apace and is Looking Likely to Stay The German government on Friday raised its forecast for economic growth this year by 2.3 percent - the fastest since the economy expanded by 3 percent in 2000. Last year, it grew by 0.9 percent. Put forward by the Federal Economics Ministry, the 2006 outlook was up from a forecast of 1.6 percent made in April. For next year, it predicted slower growth of 1.4 percent - up from its 1 percent prediction earlier this year. "The German economy is in the midst of a strong upswing," Economics Minister Michael Glos said in a statement on Friday. He cited as particularly pleasing a palpable upturn in the labor market and continuous price stability. The government's predictions were in line with an updated forecast on Thursday by six leading economic institutes - Ifo in Munich, DIW in Berlin, HWWA in Hamburg, IfW in Kiel, IWH in Halle and RWI in Essen. In an autumn report the six leading think tanks said that they were pencilling in German gross domestic product (GDP) growth of 2.3 percent in 2006 and 1.4 percent in 2007. In their previous report published last spring they had been forecasting GDP growth of 1.8 percent and 1.2 percent respectively for this year and next year. Slowdown in first quarter of 2007 Growth is then set to slow after a hike in value-added tax from 16 to 19 percent and cuts in tax breaks set for January 1. But the German government predicted that the expected slowdown will only be temporary. "Economic growth is becoming more robust overall," said Glos. The Financial Times moreover reported on Tuesday that the VAT hike next January is now looking more likely to be a temporary setback. "Economists agree the tax rise will hit growth in the first quarter. Yet opinions vary as to how lasting the impact will be, with a growing number of experts now expecting the economy to survive the blow and recover in the course of the year," the FT reported. "Economists have been surprised by the vigor and breadth of the
recovery in Germany. The economy, heavily reliant on exports, is now benefiting
from healthy corporate investment," the FT stated about the EU's
largest economy and the world's biggest exporter. Links:
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