Germany's Glos cools growth optimism

In an interview with Deutschlandfunk radio, Glos described the prediction on Wednesday by Germany's BDI industry federation that Europe's largest economy would grow by "just under two per cent" this year "a very courageous estimate".

Glos was speaking days before the government issues its latest German growth forecasts. Sources familiar with these estimates told Reuters last week the Economy Ministry would raise its 2007 forecast to 1.7 per cent from 1.4 per cent.

"I'm going to make sure that we're on the safe side again," Glos said, adding that it was better to have the forecast surpassed than raise excessive expectations about growth.

The German economy grew by 2.5 per cent last year, its strongest performance in six years. Both the government and most private sector economists kept their growth forecasts well below this figure until the final quarter of last year.

Glos said he was optimistic the current upswing in Germany would continue in the years ahead, even if he conceded that a three percentage point rise in value added tax (VAT) on January 1 would dampen growth, particularly in the first quarter of 2007.

Economists say a recent fall in oil prices, an increase in job creation in Germany and unusually warm winter weather all could help to offset the negative effects of the VAT increase.

Glos told the radio station he hoped imminent pay talks between unions and employers would lead to amicable and moderate wage settlements that would not threaten new job creation.