German Economy Slithers Toward Recession

28 April 2005

The continuing upward surge in oil prices and the worst unemployment rate since World War II has hit consumer confidence in Europe's largest economy.

German research giant GfK revealed Tuesday that its monthly index of consumer confidence fell this month to 4.9 points from a revised 5.1 in March. The index, based on a sample of around two thousand respondents, aims to forecast household spending one month in advance.

A secondary index that monitors intentions to make large purchases fell to its lowest level in five months. Taken together, the two surveys indicate a worrying erosion of consumers' confidence, their pursestrings tightened by a record unemployment figure of 12% and oil prices north of $50 a barrel.

Surprisingly, the GfK survey also found that consumers' expectations for the economy improved in April, with another sub-index rising to minus 15.6 from minus 18.2. But Germany's six leading economic institutes predicted this week that growth in 2005 will slow to 0.7% from 1.6% last year. This compares with their earlier forecast of 1.4% growth.

Says Commerzbank economist Matthias Rubisch: "The situation on the labor market may be stabilizing, but we certainly can't speak of a recovery. Consumer confidence simply can't improve much."

Many rightist commentators blame the nation's fragile economic situation on a socially-oriented political policy that accords precedence to workers' rights ahead of the interests of global capitalism.

Others point to an economy so fundamentally strong that it could absorb - and continues to do so - the burden of integration with the run-down hulk of the former communist East German state.

A situation roughly analogous, albeit on a far larger scale, to the US shoring-up the former Soviet Russia.

Data sourced from; additional content by WARC staff