Not working in Germany

Article Abstract:

There are different opinions on how the German stock market will perform in 1996, but there is agreement that the German economy faces problems. The strength of the German mark creates problems, and wages are inflexible. Unemployment is 9.5% in Germany and a two-year agreement secured in 1994 gives wage rises higher than inflation. High German labor costs are likely to lead to more job losses. Job losses in turn could lead to low levels of consumer spending, argues Morgan Stanley, but this also means low inflation which will benefit the bond market.

Financial markets

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Germany: grim recovery

Article Abstract:

Nikko forecasts growth of German gross domestic product (GDP) at 1.5%, a similar level to 1996. German fiscal policy is likely to be tightened and unemployment is rising from a high level. Interest rates are likely to remain stable in 1997 with any move likely to be downwards. The German budget deficit is likely to stay at over 3% of GDP in 1997 though this may not prevent European monetary union. Yields for 10-year German government bonds are likely to be between 5.5% and 6.5%, and the DAX is likely to be little changed, at 2,700.

Gross Domestic Product

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German interest rates: rate reversal

Article Abstract:

German interest rates look set to drop a few weeks from the start of Dec 1995 due to low inflation and overvaluing of the German mark, according to Klaus Baader from Lehman Brothers. Employment is dropping and activity forecasts for 1996 are being reduced. The growth of the money supply has speeded up, which could hinder a cut, but a drop of 0.5% is likely. Wage inflation and growth of credit could lead to a rise in interest rates in 2nd half 1996, which may be of more than 1%.

Interest rates, Monetary policy

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