Share this story
Close X
Switch to Desktop Site

Predictions of German Recovery Premature

Economic think tanks say Bundesbank must focus more on growth than on inflation

RECENT economic setbacks are dashing hopes for a German recovery in the first half of 1994, while criticism mounts about the Bundesbank's monetary policies.

Several economic think tanks are calling for the Bundesbank, Germany's central bank, to lower interest rates in the hopes of stimulating growth. But the Bundesbank - widely seen as the manager of Western Europe's economy - is resisting.

About these ads

Watching for inflation

Bank officials say a decision on interest rate levels is on hold until a clearer picture on inflation emerges. ``We do not want a change in our policy now and in the foreseeable future,'' Bundesbank president Hans Tietmeyer told journalists. The German money supply grew at an annualized rate of 7.2 percent in November, far beyond 1993's target limit of 4.5 percent to 6.5 percent, the bank said. Money supply growth is one source of inflation.

Early last week, Economics Minister Gunter Rexrodt was predicting the imminent start of a robust recovery, and one Central Bank board member hinted at a significant fall in interest rates.

The optimism quickly faded, however, after a blitz of bearish economic developments. On Wednesday, the Federal Labor Office announced that unemployment had reached its highest level - 3.69 million - since German reunification in 1990. The same day, officials said industrial orders in western Germany fell 1 percent in November compared with October.

Then came the announcement Thursday that German metals conglomerate Metallgesellschaft AG would need a massive bank bailout to avoid bankruptcy. MG, which has 58,000 employees, said losses during the 1992-93 fiscal year could top $1.9 billion. It is asking creditor banks to finance a $1.84 billion rescue plan.

Jobs, growth a priority

With unemployment levels projected this year to approach 4 million - about 10 percent of the work force - some economic think tanks are saying the Bundesbank must focus more on growth than on inflation. ``These policies are costing many jobs because they are prolonging and deepening the recession,'' the Berlin-based DIW institute said.

About these ads

At its most recent meeting Thursday, the Bundesbank left unchanged its discount and Lombard rates at 5.75 percent and 6.75 percent respectively.

Despite glum economic news, Tietmeyer maintained there is reason for hope, citing rising foreign orders. ``If this trend continued, then a gradual upturn could emerge during the year,'' he said.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.