German economy expected to cool in 2008

German economy expected to cool in 2008

BERLIN - Germany's economy minister and a leading economic institute said Wednesday they expect 2008 growth to cool amid rising food and oil prices and fallout from the U.S. subprime mortgage loan crisis. ADVERTISEMENT

Economy Minster Michael Glos was quoted by the mass-circulation Bild daily as saying the government was scaling back its forecast for 2008 to just under 2 percent. He did not give an exact figure.

The Berlin-based DIW economic institute said it expected gross domestic product to expand by 2.1 percent in the coming year, following growth of at least 2.4 percent in 2007.

"Growth will slow down, due to increased global risk," Klaus Zimmermann, president of the DIW, said in comments released Wednesday.

At the same time, Zimmermann insisted the situation was far from gloomy, with some 300,000 new jobs expected by 2009 and average salaries going up in real terms for the first time in five years.

Both Glos and Zimmermann blamed the jump in prices for fuel and food for the anticipated growth slowdown in Germany's economy, which took off in 2007 after years of stagnation. They also blamed the market instability triggered by the U.S. subprime lending crisis.

Zimmermann also criticized the government of Chancellor Angela Merkel for failing to take advantage of the upswing in the economy to push through more badly needed reforms, such as to the country's social benefits system.

"It is fatal that the government is not taking advantage of the current situation so that we do not end up with long-term difficulties," Zimmermann said.