INSTITUTES DIVIDED ON OUTLOOK FOR GERMAN ECONOMY
The five leading West German economic
research institutes have failed to agree about how strongly the
domestic economy will expand this year but revised down
forecasts contained in a report published six months ago.
    The three research groups of Kiel, Hamburg and Essen
predicted in the institutes' joint spring report that gross
national product (GNP) would rise by two pct in 1987, compared
with 2.4 pct in 1986. The five institutes had jointly forecast
three pct 1987 growth in October last year.
    Taking a dissenting view, the DIW institute of West Berlin
and Munich's Ifo institute predicted only one pct 1987 growth.
    The joint report said that the estimates of economic
development made by the DIW and Ifo were "markedly less
favourable" than those of the other three.
    The DIW and Ifo forecast the economy would pick up after a
slow start to the year. "In the second half of 1987 there will,
however, only be a weak upward movement," they said.
    The two institutes said external economic factors which
were currently damaging exports and pushing up imports would
dominate the economic environment throughout the year. They saw
exports falling by a real 2-1/2 pct in 1987 and predicted no
marked improvement in the course of the year.
    The other three institutes, however, wrote: "The decline in
demand and production (seen) in the winter months does not
indicate the beginning of a cyclical downswing."
    They said the sharp rise of the mark had led to corporate
uncertainty and companies had not carried out investment plans.
But they expected that many investments had not been cancelled
but only put off. "It can be presumed that the braking actions
(on the economy) will diminish markedly this year."
    They added: "The domestic prerequisites for a continuation
of the economic uptrend are still favourable."
    These three institutes said diminishing external burdens
combined with favourable domestic conditions meant an upturn in
demand and production could be expected by the spring.
    However, this projection was clouded by risks including the
further development of the mark against the dollar.
    Contrary to the DIW and Ifo, the three institutes said that
while exports would continue to be the weak point of the
economy in 1987, "there is good reason to believe that exports
will soon bottom out and that a slight rise will emerge during
the course of the year." They predicted an overall 0.5 pct fall
in exports in 1987, the same as in 1986.
    The three more positive institutes saw private consumption
rising by four pct in 1987, compared with 4.2 pct in 1986,
while DIW and Ifo predicted a three pct increase.
    They saw the climate for equipment investment improving but
predicted only a rise of four pct in 1987 against 4.6 pct in
1986. Ifo and DIW saw these investments rising by only two pct.
    All the institutes predicted only a slight decline in
unemployment. The Kiel, Hamburg and Essen institutes said the
jobless total would average 2.17 mln in 1987 compared with 2.23
mln in 1986 and predicted a rise in the number of people in
work of about 200,000.
    These three institutes said new jobs would be created
mainly in the private services sector and also by the state in
the context of job creation measures. The construction industry
was likely to engage new workers for the first time since 1980
but they predicted either no rise in employment in the
manufactured goods industry or only a slight expansion.
    The DIW and Ifo said rises in employment would occur only
in the tertiary sector, while "the number employed in the
manufacturing industry will decline."
    The DIW and Ifo said unemployment would only decline to
2.20 mln in 1987 from 2.23 mln in 1986.
    They saw the current account surplus falling in 1987 to 58
billion marks from 78 billion in 1986. The other three saw a
current account surplus in 1987 of at least 60 billion marks
and predicted that the trade surplus would fall to only around
100 billion marks from 112 billion in 1986.
    The institutes agreed that consumer prices would start to
rise in 1987, after they declined in 1986, and all five
predicted an average increase over the year of 0.5 pct.
 REUTER
