BERLIN, Sept 8 - The German government believes its growth and unemployment forecasts for next year may be too optimistic, according to draft 2004 budget documents obtained by on Monday on the eve of their presentation to parliament. The admission is likely to raise the temperature of the debate on the budget, which opposition parties already argue is flawed by inclusion of revenues from tax measures that have yet to be enacted and which they have the power to block.
But the move could help the government avoid domestic, constitutional problems with its budget and escape punishment by the European Union for breaking the EU's three percent of gross domestic product limit on budget deficits. Der Spiegel magazine reported at the weekend the government would "drastically cut" its forecast to justify breaking the EU's deficit limit for a third year in a row. That could help it argue against a possible penalty under the terms of the bloc's Stability and Growth Pact, although the rule states "exceptional circumstances" can only be pleaded in cases of an outright contraction of GDP. By playing up the economy's problems, the government can also get around a German constitutional ban on borrowing more than is spent on investment.
German Finance Minister Hans Eichel said on Monday in an interview with ZDF television that the economy appeared to have turned a corner after shrinking in the first six months of the year. But he reiterated that respecting the EU budget rules next year would be difficult. FORECASTS SEEN AS TOO OPTIMISTIC The budget's introduction says the government's forecasts that Europe's largest economy will grow around two percent next year and that unemployment will average 4.44 million are optimistic given weak domestic and uncertain foreign demand. While the end of the Iraq war had lifted some uncertainty from the global economy, the United States twin budget and current account deficits posed a risk that the dollar could depreciate, making German exports uncompetitive abroad, it says.
"Given this uncertain and risky foreign environment and the continued weak domestic economy, the government's spring forecasts for growth in gross domestic product this year of around 0.75 percent and for around 2.0 percent in 2004 are at risk," the text says. "More recent growth forecasts of other national and international institutions have been significantly reduced... the probability has risen that GDP growth will be less than expected in the government's spring forecasts and that growth in 2004 will not be enough to create employment," it adds. The government originally forecast unemployment in 2003 would average 4.46 million on the assumption the economy would grow 0.75 percent. But the economy contracted in the first half of the year and most analysts expect zero growth. The Berlin-based DIW economic think tank, one of six institutes partly funded by the government, predicted on Monday the economy would grow just 0.1 percent in the third quarter.
While the budget debate will start on Tuesday, the budget will not be finally adopted until after new tax estimates are drawn up in early November. The government has already said it will review its growth forecasts at the end of October in preparation for the new tax estimates. As announced by the government in July, the budget foresees total spending of 251.2 billion euros and new borrowing of 30.8 billion euros to make up for the gap between spending and tax and other revenues. The government has said it aims to reduce actual new borrowing to around 29 billion euros with the help of privatisation revenues, but that will still be some four billion euros above planned investment.//