Berlin - The German economy grew by a solid 0.7 per cent during the third quarter, the country's statistics office said Friday, with a pickup in exports and corporate investment driving the expansion rate in Europe's biggest economy. But in its latest report also released Friday, the German government's economic advisory panel roundly criticized planned tax cuts and warned against "overly optimistic views of Germany's economic prospects."
Underscoring the depth of the downturn that engulfed the nation over the last 12 months the nation's economy shrank by a sharp 4.7 per cent year-on-year in the third quarter, Friday's figures showed.
Releasing the data, however, the statistics office also revised up the second-quarter figures, saying that the economy expanded by 0.4 per cent in the three months to the end of June.
In its report, called Don't Gamble with The Future, the government's advisory panel predicted the economy would slump by 5 per cent this year before accelerating in 2010 by 1.6 per cent, faster than the 1.2 per cent projected by Berlin for next year.
Once again, exports are expected to be the mainstay of growth with the panel forecasting that the world's leading export nation will report a 6.3-per-cent rise in exports in 2010 after they went into tailspin this year as the economic crisis engulfed global trade.
However, the release of the new growth data coincided with signs of deepening economic uncertainty as concerns set in about the prospects of rising unemployment hitting private consumption in the country.
Germany's jobless rate will climb to 9.4 per cent in 2010 from 8.2 per cent this year, the advisory panel predicted with private consumption slipping by 0.1 per cent next year.
Moreover, the panel also underscored worries about the timing of moves to wind back the government's 85-billion-euro (128 billion dollar) anti-crisis fiscal stimulus plan, which has helped to buoy economic growth.
But the fiscal measures are expected to result in a ballooning out in the nation's deficit.
Many economists see the move to pull back from the stimulus measures as one of the major challenges facing economic management in Berlin in the coming months.
Chancellor Angela Merkel's new coalition government has also agreed to start rolling out tax cuts totalling 25 billion euros in 2011.
But the advisory panel said: "Most importantly, there is no scope for additional spending measures or tax cuts," warning instead that tax hikes might be inevitable.
It went on to tell the government that it lacked "a comprehensive exit strategy" for drawing down the stimulus package.
"Concrete steps to reduce structural deficits are missing," the panel said. "Instead the new government promises a mix of tax cuts and spending measures."
Germany emerged more swiftly than expected from its deepest recession in a generation to report an initially estimated 0.3-per- cent expansion rate during the second quarter.
The country's third-quarter growth rate was roughly in line with analysts' projections. However, the statistics office said private consumption acted as a drag on growth in the latest quarter.
"Looking ahead, the current momentum is likely stay for some time," said ING Bank economist Carsten Brzeski.
"The inventory cycle has just started to turn and positive news will continue. Moreover, filling order books and accelerating global demand point to a further pick-up in economic activity," he said.
The healthy third-quarter growth rate meant Germany helped to lead Europe out of recession during the three months to the end of the September.
Official data also released Friday showed the 16-member eurozone economy growing by 0.4 per cent in third quarter after it narrowly missed out on emerging from recession during the second quarter.
Two of the world's other leading economies, Japan and the US have already returned to a recovery path.
But highlighting the fragile state of recovery in Europe, the British and Spanish economy remain mired in recession, contracting by 0.4 per and 0.3 per cent respectively.
