Weber Says German Recovery Accelerating, No Exit Yet
Bundesbank President Axel Weber said stimulus for the German economy shouldn’t be withdrawn too fast even as its recovery from the deepest recession since World War II accelerates.
The economy, Europe’s biggest, probably expanded around 0.75 percent in the third quarter from the previous three-month period, when it grew 0.3 percent, Weber told reporters before a meeting of finance ministers and central bankers from the Group of Seven in Istanbul today. While “the general economic trend is pointing upward,” the recovery “continues to rely on support from fiscal and monetary policies, and that shouldn’t be withdrawn too quickly,” he said.
Germany’s government is spending about 85 billion euros ($124 billion) to revive growth, including investment in infrastructure and a 2,500-euro payment for people who scrap an old car to buy a new one. The European Central Bank has also cut interest rates to a record low and is flooding banks with cheap cash in an effort to get them lending again. The recovery could falter if those measures are removed too soon.
The International Monetary Fund today said central banks in Europe should keep interest rates low and possibly extend non- standard stimulus measures because the region’s economic recovery is likely to be “slow and fragile.” Germany’s economy will contract 5.3 percent this year and expand 0.3 percent in 2010, the IMF predicted.
Stabilization
“Signs of stabilization are clearly to be seen,” German Deputy Finance Minister Joerg Asmussen said at the joint press conference with Weber. “We still have a relatively stable situation in the labor market.”
The number of people out of work rose 10,000 in September on a seasonally adjusted basis, before statistical changes are taken into account, the Nuremberg-based Federal Labor Agency said Sept. 30. Including the changes, unemployment declined by 12,000 to 3.46 million. Economists had forecast an increase of 20,000, according to the median of 27 estimates in a Bloomberg News survey online payday loans.
“We see risks for the labor market,” Weber said. “We’re concerned that unemployment may rise in the course of next year and that would hurt consumer spending.” Germany’s gross domestic product may not return to last year’s level before 2013, Weber said.
Tax Cuts
While Chancellor Angela Merkel’s prospective coalition of Christian Democrats, the Christian Social Union and the Free Democratic Party may seek to cut taxes to spur the economy, Weber said any reductions have to be offset by spending cuts to ensure government borrowing can be brought under control.
Germany, the world’s biggest exporter, was hammered by the global recession as sales of Wolfsburg-based Volkswagen AG cars and Munich-based Siemens AG equipment slumped.
Weber, who’s also an ECB council member, said the central bank hasn’t decided yet when it will reverse “unusual interest- rate cuts and excess liquidity” provisioning. While the ECB will have to raise rates and withdraw stimulus at some stage, that doesn’t mean “we’re at that point already,” he said.
With Germany relying on foreign sales, Weber said he welcomed U.S. Treasury Secretary Timothy Geithner’s statement that a “strong dollar is very important” to the U.S.
The dollar’s 14 percent drop against a basket of seven currencies since early March is threatening to undermine economic recoveries outside the U.S. by making their exports more expensive.
Canadian Finance Minister Jim Flaherty said on arriving in Turkey late yesterday that he’s “concerned” about “upward pressure on the Canadian dollar” from the weaker U.S. currency. French Finance Minister Christine Lagarde told reporters yesterday that “everyone needs a strong dollar.”