19 March 2001, 16:54 EICHEL: NOT OVERLY WORRIED ABOUT US ECON SLOWING
-U.S. Situation Can Turn Around Rapidly
--Situation in Japan Worrisome, But Not Major Risk For World Economy
--Too Early To Revise Down German 2001 GDP Forecast
--Need No Further Tax Cuts To Bolster German Economy
BERLIN (MktNews) - Germany Finance Minister Hans Eichel is not
overly worried by the economic slowdown in the United States and does
not expect further downward risks to the world economy from Japan,
though he is concerned about the Japanese situation.
Eichel told the weekly newsmagazine Der Spiegel in an interview
published Monday that it is too early in the year to consider revising
down the government's official growth forecast of 2.75% for Germany.
No further tax cuts are planned to stimulate the economy, he added.
Asked about the slowing of the U.S. economy Eichel said: "I am
registering that, but that development is not overly worrisome to me,
it can rapidly change again."
"What is worrying me is the situation in Japan. The country is
virtually at death's door. The economy has been stagnating for some
time, the government is not getting things under control," he warned.
However, Eichel does not expect any additional risks to the world
economy from the dismal situation in Japan.
"Because that (the dismal situation in Japan) has been the case for
some time already, I do not see any additional risk to the world
economy," Eichel said in the interview.
Asked if he thought that the German government's forecast for 2.75%
German GDP growth this year had to be revised downwards due to clear
signs that the economy is slowing, Eichel replied: "I do not see it as
being that strong or that clear."
The HWWA economic research institute last week was the latest think
tank to revise down its German growth forecast, reducing its 2001 GDP
projection to 2.3% from 2.7%. That revision follows similar moves by the
Kiel institute, the DIW institute and by Ifo. Kiel cut its forecast to
2.1% from 2.4%, Ifo to 2.4% from 2.5% and DIW to 2.1% from 2.5%.
Pointing out that it was still early in the year Eichel said: "Let
us be patient and wait how the situation develops."
"By the way, even if we would arrive at the end of the year only at
a growth rate of 2% (in Germany), that would still be more as the
average (growth rate) of the ninety's," Eichel remarked.
The finance minister said that he expects employment to grow in
Germany in any case.
"If the (German) economy is running at capacity limits, as we have
seen recently, then employment will grow even in the case of low
(economic) growth rates," Eichel said.
"In that regard, everybody -- even those, who are revising
downwards their (economic growth) forecasts -- assumes that we will see
significant job growth (in Germany) and thus a lowering of unemployment
rates," he said.
Eichel rejected industry demands to bring forward some of the tax
cuts planned under the German landmark tax reform. "Public budgets can
not cope with that," Eichel said.
"Besides, you can not influence the economy in the short term by
the means of budget or fiscal policy, because those measures would
become effective far too late," the minister said.
Under the German tax reform -- which came into effect at the start
of this year -- unincorporated companies see their basic tax rate
gradually reduced to 15% from initially 25.9% and the top rate cut
step-by-step to 42% from previously 53% until 2005. Whereas the
corporate tax rate was cut this year in one step to a uniform 25%.
Germany's main business and industry associations demanded over the
weekend that the government bring forward the planned tax cuts for
unincorporated companies.
Eichel stressed that fiscal policy should be stable, and that
therefore he intends to wait for the results of the tax estimate in May.
"We will have to be patient until May. The finance minister will
not act until he has reliable data at his disposal," Eichel remarked.
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