BERLIN, Sept 7 - Economy Minister Wolfgang Clement said he was confident the German economy would grow about two percent next year, dismissing a report in Der Spiegel news magazine that the growth forecast would be sharply lowered. "We are expecting the economy to recover with growth of about two percent in 2004," Clement told Television. He said there would be three fewer holidays next year and that fact alone would boost growth by about half a percentage point. "There will be more working days next year -- that alone will bring nearly an extra 0.5 percent growth," Clement said. Also, the government's plans to bring forward income taxes to 2004 from 2005 on top of another set of tax cuts set for 2004 would bring a further 0.4 percent growth.
"When you add all that up, with the economic reforms in Germany on to what's happening (with increased growth) abroad, our experts are predicting growth of two percent next year," he said. Many independent economists have said the two percent growth target is unrealistic. They predict the budget deficit will thus be near four percent in 2004, breaching European Union Stability Pact rules for a third consecutive year. Germany, Europe's largest economy, slipped into recession this year, with growth shrinking by 0.1 percent in the second quarter after a contraction of 0.2 percent in the first quarter. "That (two percent growth in 2004) is also what we need to bring improvements to the labour market," Clement added.
Clement, in a separate interview with the Berliner Zeitung newspaper, said growth of even one percent would lead to a decline in unemployment because structural reforms in the job market were taking hold. "Everything between one and two percent growth can lead to an appreciable improvement in the labour market -- thanks to the reform of the labour market we've been working on." He said in an interview with Deutschlandfunk radio that the government's growth forecast will not be reviewed until October. Der Spiegel magazine reported the government would slash its growth forecast for 2004 from two percent in order to avoid penalties from the European Union over its budget deficits. It said the government would "drastically cut" the forecast but without specifying to which level.
"There are no corrections to the growth forecast," an Economy Ministry spokeswoman said. The magazine said the government would then be able to argue that "special circumstances" are to blame for Germany failing to meet the EU budget-deficit criteria of three percent of gross domestic product again in 2004. Germany has already breached the three percent target in 2002 and will miss it again in 2003. Germany fears financial penalties could be imposed by the EU Commission if it fails to meet the Stability Pact target again in 2004.///