Economy | 15.01.2008
Germany Balances Budget for First Time Since 1969
Germany last year managed to balance its budget for the first time in nearly 40 years, due to a sales tax increase and a stronger economy. But government officials already cautioned that it won't stay like that for long.
In 2007, the German government received 70 million euros ($103 million) more than it spent, according to figures released by Federal Statistical Office (Destatis) in Wiesbaden on Tuesday, Jan. 15. Last year, the budget deficit ran at 1.6 percent, or nearly 37 million euros.
During the period 2002-2005, the government had breached a European Union-mandated limit of 3 percent of GDP, but Brussels suspended its deficit procedures against Germany in June last year.
The increase in value-added tax from 16 percent to 19 percent at the start of 2007 was partly responsible for the balanced budget.
For the coming year, however, the German government expects the deficit to grow again, as recent business tax and unemployment insurance reforms will result in reduced tax takings.
Solid economic growth
Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Germany's growth is primarily export driven
The Destatis figures showed the German economy grew by 2.5 percent last year. This was down on 2006 which experienced 2.9 percent growth -- the fastest expansion since the turn of the decade.
Exports and investment were the main drivers of Germany’s growth in 2007. Destatis said German exports, a traditional strong point, grew by 8.3 percent last year and accounted for more than half of the growth in GDP.
Slow down expected
The statistics office has not yet published fourth quarter figures, but German industrial production, exports and retail sales declined in November, suggesting the economy is losing momentum.
The outlook for 2008 in the eurozone’s biggest economy appears less rosy, with oil trading close to record prices, the euro's strength against the US dollar raising fears over the competitiveness of exports, and concern still strong over the fallout from the US subprime housing credit crisis.
Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift: The dollar has been falling against the dollar for the past weeks
Economy Minister Michael Glos recently has said that he plans to revise downward the government's 2008 growth forecast of 2 percent, although he has not specified a new figure.
Falling investor confidence
Meanwhile, German investor confidence has hit its lowest point in 15 years, according to a much-watched survey conducted by the Mannheim based ZEW Center for Economic Research.
ZEW said its economic sentiment indicator, based on surveys of 270 analysts, fell by 4.4 percent and are now at minus 41.6 points -- a figure which is considerably under the average of 31 points.
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