BERLIN, Jan 23 - The German government is sticking to its forecast of growth between 1.5 and 2 percent in 2004 but expects the euro's rise to slow the momentum of exports in the first half, according to a draft of its annual economic report. The draft obtained by on Friday, which reiterates the government's forecast made in October, also indirectly urges the European Central Bank to cut interest rates if the euro appreciates further.
Citing a recommendation made in November 2003 by the German Council of Economic Exports, the panel of government advisers known as "wise men", the report says: "If -- as the Council said in November 2003 -- there were to be a further strong appreciation of the euro, there would be room for a cut in interest rates." The ECB has repeatedly played down the role any interest rate cut could play in influencing exchange rates, emphasising its rate was low already at 2.0 percent. But speculation is growing it will have no choice but to reduce rates. The euro's recent surge against the dollar to levels just below $1.29 has prompted calls by EU governments including Germany for some sort of action to stem the rise. The government report says exports are being boosted by Germany's strength in investment goods which tend to be in particularly high demand at the start of global recoveries. "But the momentum of German exports in the first half of 2004 will be dampened by the clear euro appreciation," the report says. Despite the euro's rise, the government projects a real rise of 5.8 percent in exports in 2004 in value terms.
The report says: "On average in 2004 gross domestic product will grow in a range of 1.5 to 2 percent in real terms. Capital equipment investment will increase gradually, following strong growth in exports." The report repeats the government's working assumption of 1.7 percent growth in 2004. It projects that unemployment will fall by 100,000 in 2004 compared with the 2003 average of 4.376 million, and that the steady decline in employment will come to a halt. Private consumer spending will increase by a real 1.2 percent, and will therefore have an appreciable positive impact on growth for the first time in two years, the report says.//