Robust Economic Upswing Continues in Germany

Germany's economic recovery is set to continue in the coming months. The Munich-based Ifo Institute for Economic Research expects the economy to grow at a rate of 2.6 percent. This positive trend is increasingly reflected on the labor market.

The Munich-based Ifo Institute today published an upbeat Business Climate Index. In spite of a slight downturn, the Index is still strong at 106.4 points. "The results indicate a continued economic upswing in the second half of the year," declared Ifo President Hans-Werner Sinn. Accordingly, the institute reaffirmed its economic forecast for the year as a whole.

The International Monetary Fund (IMF) now also expects the German economy to develop in this positive way. It has revised its forecasts for both 2007 and 2008 upwards. The IMF now expects the German economy to grow by 2.6 percent this year, as compared to the 1.8 percent it was still forecasting in April. In 2008 too, the economy will grow strongly, according to the IMF, which has now revised its April forecast of 1.9 percent economic growth for the coming year to 2.4 percent.

Record financial assistance for business startups

This forecast is backed up by the German Institute for Economic Research (DIW). Its economists are also counting on 2.6 percent growth for the current year, with 2.5 percent growth forecast for 2008. The DIW had previously forecast 2.4 percent economic growth for both years.

The locomotive of this upswing will increasingly be medium-sized companies and new startups, as reflected in the figures of the KfW Bankengruppe. Never before have so many loans been accorded to this sector in the first half of a year as in the first six months of 2007. The volume of assistance granted rocketed to 45.5 billion euros, a 37 percent increase over the previous year's figures.

Economic recovery generates jobs

And what is particularly positive, it that the labor market too is continuing to recover as the economy gains momentum. Between January and June 2007 the number of the long-term unemployed in Germany dropped by 17 percent. Some 1.9 million people classified as long-term unemployed managed to find work in this period.

The optimistic mood on the labor market seems set to continue. More than three-quarters of German mechanical engineering companies, for instance, plan to expand, according to a recent survey conducted by VDMA, the German mechanical engineering and capital goods manufacturers association.