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Economic forecast 2005/2006

Apr 19, 2005

Although the extremely health momentum seen in 2004 is not likely to be matched, we still expect growth in the world economy of 3.0 % this year and 3.2 % next. In the euro area we expect GDP to increase by 1.5 % this year and 2.1% next year. For Germany we have penciled in 0.8 % in 2005 and 1.8 % in 2006.

World trade will again be a key driver of the world economy, with volumes set to expand by 7.5 % in 2005 and around 8 % in 2006. The current phase of expansion is distinguished by a number of special features which display only limited similarities to previous cycles. These include the marked increase in the return on capital in the corporate sector, especially in the USA and Germany, as well as the relatively lackluster labor market recovery. Over the next two years we expect the period of low interest rates to come to an end. Although there is likely to be marked let-up on the oil markets in the course of 2005, the oil price will remain a risk factor for the economy. We expect the oil price to average 45 USD/barrel in both 2005 and 2006.

There are still a number of question marks hanging over the economic revival in the EU. But the interest rate backdrop will remain favorable for the time being. In January, figures on industrial production, new orders and exports were pointing up. But the mood clouded over again in February in the shadow of the oil price, the soaring euro and the temporary impact of reforms on the unemployment statistics. But despite this renewed dip in sentiment, we remain cautiously optimistic about the outlook for the German economy this year and, particularly, next year. Exports will remain an important mainstay. Wage restraint and consolidation have helped boost international competitiveness. Although the rise in the euro might curb export growth somewhat, real exports are likely to increase by 4.6 % this year. With imports also set to rise, foreign trade will contribute 0.4 percentage points to growth.

Economic growth this year will have little impact on the jobless total. We expect unemployment to average 4.87m this year (unemployment rate: 11.7 %). The number of people in employment will probably rise by 1 %, in line with almost 400,000 jobs.

Claudia Broyer
Tel.: +49.69.2 63-1 97 90
[email protected]

David F. Milleker
Tel.: +49.69.2 63-113 48
[email protected]

Christiane Seyffart
Tel.: +49.69.2 63-5 54 13
[email protected]

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German economy to gather pace in 2006