No Help From The Bundesbank Yet

Lackluster data is putting pressure on the Bundesbank to cut interest rates. But so far, the central bank is resisting.

In its own June economic report, the Buba said it expects "a slowing down of growth." The index of business climate fell in April, with all industries showing more pessimism. And private economists are trimming their forecasts for Germany. The consensus now calls for gross domestic product to grow at closer to a 2.5% rate in 1995 and 1996 rather than a faster, job-creating pace of 3%. Even so, the central bank did not lower rates at its June 14 meeting, a disappointment for many investors and the 9.2% of west Germans who are jobless.

Analyzing the economy right now is difficult because industrial output and orders have been delayed as Germany changes its data to comply with new European Economic Community methods. Even so, it is clear that slower exports are causing the downshift.

Exports are being hurt by the strong mark as well as rising labor costs, a consequence of the generous contracts hammered out with two of Germany's top unions. On June 20, the Federation of Chambers of Commerce said that exports will rise only 5% this year, down from 9.1% in 1994. And in an IFO Institute survey, manufacturers' net expectations for exports over the next three months fell to -0.9% in April, the first negative reading in 18 months.

Meanwhile, inflation, the Buba's main adversary, seems less of a problem. In May, the M3 money supply, considered the key inflation indicator, was down at an annual rate of 0.7% from its 1994 fourth-quarter average. And wholesale prices rose a mere 0.1% in May.

Tax relief is set for early 1996. But any more fiscal help will take time to work through the economy. The Buba would like to see consumer inflation below 2%, from 2.2% in May, before cutting rates. But if Germany is to have momentum going into '96, the central bank, which last eased in March, may have to cut again before its summer recess in late July.

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