Germany Benefits from Global Recovery

The general economic outlook for next year is improving. The International Monetary Fund has revised up its global economic growth forecast for 2010 to 3.1 percent from a previous forecast of 2.5 percent, business daily Handelsblatt reported on Wednesday.

Germany as a major exporting nation will benefit from the recovery and will have growth of 0.3 percent in 2010, the newspaper reported, citing a draft for a new forecast that the IMF plans to present on Thursday in Istanbul where the IMF and World Bank are holding their annual meetings. Previously, the IMF had expected the German economy to shrink by 0.4 percent next year.

The IMF expects German GDP to contract 5.3 percent this year, Handelsblatt reported. The IMF has revised its forecast for the global GDP contraction this year to 1.1 percent from 1.4 percent.

The improved outlook coincided with news that German unemployment fell surprisingly sharply in September, by 125,000 to 3.346 million, pushing the jobless rate down 0.3 points to 8.0 percent, according to figures released by the Federal Labor Agency on Wednesday. The drop was bigger than economists had expected, and was explained by the usual increase in job vacancies at the end of the summer vacation period.

"Unemployment fell significantly in September because of the autumn revival," the chairman of the Labor Agency, Frank-Jürgen Weise, told a news conference on Wednesday. "But this is no turnaround in the trend. Overall, the impact of the economic crisis on the labor market is still being felt."

German Unemployment Set to RiseDespite the good figures, analysts expect the jobless total to rise sharply in the coming months. Many firms have refrained from laying off workers in recent months but will have to axe jobs soon because their order books are empty after the worst economic downturn since the 1930s.

The jobless total could reach up to 3.7 million by the end of the year and rise above four million by March next year, according to a survey of bank economists conducted by the dpa news agency.

Many companies that have made use of government-subsidized short-time working schemes are expected to announce redundancies soon. The schemes are designed to help get firms through rough times without having to sack employees, but they are temporary and costly both to employers and the government.

At present some 1.5 million employees are on short time. The Federal Labor Agency estimates this will cost €14 billion ($20.5 billion) in 2009 alone. The government shoulders €6 billion of the cost, with companies paying €5 billion and employees contributing €3 billion through foregone wages.

While the German economy, Europe's largest, has moved out of recession, its job market remains vulnerable. "We have very slight economic growth but that's not enough for a job market recovery," said Philipp Jäger of DZ-Bank. "Many companies have excess capacity, they won't be able to avoid trimming their workforces."

The job market generally reacts to rising growth rates with a time lag of six months, which means unemployment is pre-programmed to rise despite the current rise in economic activity, economists said.

FDP Pushing for Radical ReformsMeanwhile the pro-business Free Democrats have vowed to push for tax cuts in their coalition talks with Chancellor Angela Merkel's conservatives starting next Monday. The party also wants to deregulate the labor market, for example by making it easier for small businesses to fire employees, but many conservatives are opposed to such radical reforms that could anger voters.

Mass circulation daily Bild on Monday speculated that FDP leader Guido Westerwelle, who has been widely tipped to become foreign minister in Merkel's new center-right government, may instead head a merged finance and economy ministry.

The newspaper cited unnamed sources in the FDP and among conservatives as saying Westerwelle was more urgently needed in Berlin rather than on the international stage. No one in the parties wants to go on record yet but there are internal discussions about making Westerwelle "superminister" of finance and economics, which are currently separate ministries, the newspaper reported.

It cited a number of analyst and experts saying that would make more sense. "As superminister for finance and the economy Merkel would be much better able to contribute his expertise on tax and fiscal policy," said the president of the Association of German Taxpayers, Karl Heinz Däke.

Political analyst Gerd Langguth, Merkel's biographer, said: "Guido Westerwelle's added value is quite clearly in domestic politics, not foreign policy. The chancellor needs Guido Westerwelle much more urgently as superminister, especially given his talents as a speaker."

cro—with wire reports

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