BERLIN, April 27 (UPI) -- Germany's business confidence has risen to a 15-year high and unemployment is falling. Is Europe's largest economy out of its valley of tears?
It definitely is when it comes to the country's expectations. German business confidence unexpectedly rose to its highest value since 1991, according to numbers published Tuesday by the Ifo research institute. And market research firm GfK found Wednesday that consumer confidence is at its highest since November 2001, at a time when the looming introduction of the Euro pushed sales.
While the numbers look great, the reality is a bit different, according to experts.
"The rise of business confidence is to 70 percent thanks to the industry, which at the moment is really doing very well," Ralf Solveen, economic analyst at the Frankfurt-based Commerzbank, one of Germany's largest private banks, told United Press International via telephone. "In the other sectors, people simply don't have high expectations anymore. After four years of drought, even the slightest improvement feels great." He added that consumer confidence, despite its current high, still was at levels that are "pretty bad."
Germany's unemployment total in March 2005 had surged to a post-World War II high of 5.2 million. Economic growth has been low to stagnant in the new millennium. German Chancellor Angela Merkel vowed to improve the situation on the German job market after she took over from her predecessor Gerhard Schroeder late last year. At the time, some 4.7 million were out of work. That number increased during Merkel's first month in office, and is now slowly declining.
The Federal Labor Agency Thursday announced nearly 200,000 people found a job in April as warm weather after the coldest March in a decade allowed companies to hire, especially in construction. The unemployment total fell to 4.79 million from 4.98 million in March.
The decline in full-time jobs seems to have stopped, said agency head Frank-Juergen Weise in a televised interview, adding however that there was "no buildup yet." Increased hiring could come as early as mid-year, he said. The April drop in unemployment is "no reason for euphoria."
But euphoria is in full-swing in Germany, and observers link the increased expectations to anything from the government change to the long-awaited FIFA Soccer World Cup, which Germany hosts this summer. Experts hope for as much as 30,000 to 50,000 jobs created by the month-long tournament.
Six leading German economic institutes on Thursday upped their growth forecast for 2006. They expect the German economy to grow by 1.8 percent (up from last year's estimate of 1.2 percent), and the federal deficit to be at 2.9 percent of the country's gross domestic product. That means Berlin in 2006 may -- for the first time in five years -- meet the European Union's Stability and Growth Pact, which required members to have budget deficits below 3 percent of their domestic GDP.
However, despite the upswing for this year, the overall situation on the job market "will likely not significantly improve," the report says, adding that the economy would take a serious hit if oil prices further increase.
For 2007, the report gives an even more gloomy outlook, namely because of Merkel's plan to raise the value-added tax to 19 percent from 16 percent, a bid to reduce the federal deficit.
While the intention is good, the report says, the measure is too drastic and will bring back down the newly surging consumer spending.
"The government should raise the VAT in two steps: Next year by two percentage points, in 2008 by the final percentage point," the report argues.
Germany has banked on its traditionally strong export sector, which has seen double-digit growth in the past two years. Domestically, however, job creation is only slowly gathering pace.
German giant Siemens, the world's largest electronics company, Thursday announced far better sales than expected, with a net profit of $1.1 billion between January and April 2006 -- an increase of 14 percent compared to the same period in 2005.
In past months, Siemens has slashed almost 1,500 jobs at its ailing landline phone branch Com, and company officials Thursday announced further personnel will be let off in significant numbers.
Solveen said small and mid-sized companies will likely account for Germany's future job growth, as external pressure on large companies remains high.
Merkel needs to deliver on the reform promises of her right-left grand coalition government, he said.
"We need to simplify the tax system, bring business taxes down and untie the health insurance from salaries," Solveen said. "But that's no news. These measures have been requested for the past ten years. Let's hope that they are finally realized."
