FRANKFURT (AFP) — Germany, the eurozone's biggest economy, is set for a sharp slowdown next year, top economists and analysts said Wednesday, with strong industrial output data failing to mask a darker outlook.
In their traditional autumn report, Germany's so-called "Five Wise Men and Women," a panel of independent economic advisors to the government, forecast 2008 growth of 1.9 percent, well off the 2.6 percent pace expected this year.
The panel's assessment was more pessimistic than the government's, which sees the economy expanding 2.0 percent in 2008, and the experts urged German officials to pursue unpopular reforms.
Meanwhile, economy ministry figures showed industrial production had edged higher in September from the previous month, surprising analysts and locking in a solid performance for the third quarter of the year.
Monthly growth of 0.3 percent gave a quarterly figure of 2.1 percent, the best result since the second quarter of 2006.
But another survey showed that factory orders dropped in September, and taken along with other leading indicators suggested the third quarter would probably be the last to see strong growth for some time.
"This is probably the last really strong growth figure for the foreseeable future," said Matthias Rubisch at Commerzbank.
Capital Economics economist Jennifer McKeown added: "It seems likely that industrial growth will slow pretty sharply in the coming months and the onus will shift to household (spending)."
The experts said "the most important factors of a slowdown will come from abroad" and forecast stronger domestic demand, although German consumers are notoriously reluctant to spend freely.
Germany's export-oriented economy is vulnerable to a slump of the key US market, high energy prices and the rising euro, which hit a fresh record of 1.4731 dollars on Wednesday.
But the council of experts emphasized that "the economic slowdown did not mean the end of growth or a recession."
In light of the general outlook however, they warned Chancellor Angela Merkel's government not to abandon unpopular reforms initiated by her predecessor Gerhard Schroeder.
The ministers could easily be tempted to do that to as key regional ballots in January and general elections scheduled in 2009 approach.
The advisors stressed that Germany's strong economic performance since 2005 was "the consequence of deep, widespread reforms that aimed to adapt (the economy) to increased international competition."
Their view is shared by German industrialists, banks, the central bank and the International Monetary Fund.
The ruling German coalition of conservatives and social democrats is now mulling an extension of jobless benefits that were sharply cut back by a plan in 2005 that is credited with helping the nation's weak economy to bounce back.
The economic experts slammed the government's current position, warning that it lacked a "clear strategy on economic policy" and risked falling prey to "lobbying activism."
Merkel later defended her cabinet, saying after the experts report: "You can start on the basis that we will not turn back from crucial reforms."
As the economy strengthened and government accounts improved, many politicians have begun to suggest it is time to share the wealth with those who had not found jobs or otherwise benefitted amid the upturn.
Now, however, it looks like the economic good times are fading fast and that yet more rigour will be called for.
Industrial orders, fell by 2.5 percent in September, "could be the first sign that the headwinds are starting to bite," Bank of America economist Gilles Moec said.
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