FRANKFURT (AFP) - Business leaders in Germany appeared wary about the outlook for the eurozone's biggest economy, as the German government insisted that the current recovery would continue, even if surging oil prices would brake growth slightly.
Business confidence in Germany, as measured by the monthly business climate index calculated by Munich-based think-tank Ifo, edged up by a meagre 0.1 point to 95.3 points in October, effectively treading water for the third month in a row as company bosses stayed cautious about the recovery scenario.
Ifo President Hans-Werner Sinn diagnosed: "The economy is continuing to grow, but without the same momentum seen in earlier upturns. Employment expectations remain poor."
For its monthly survey, Ifo polls about 7,000 companies on their assessment of current business and their expectations for the next six months.
A breakdown of the data showed that while companies were feeling slightly more upbeat about the outlook for the coming months, their assessment of their current situation was little changed.
Analysts argued that persistently high oil prices and the strong euro were clouding the growth horizon.
Even the government acknowledged those dangers when it published its latest updated growth forecasts in Berlin.
Economy and Labour Minister Wolfgang Clement said that while he was confident the current economic recovery would continue, higher energy and raw materials prices meant growth could slow fractionally next year.
The German economy "will grow at somewhere between 1.5 percent and 2.0 percent both this year and next year," Clement said.
But within that range, growth would come out at around 1.8 percent in 2004 and 1.7 percent in 2005, he said.
The numbers were effectively a downward revision from the government's earlier forecasts for growth of 2.0 percent this year and 1.8 percent next year.
To complicate matters, the forecasts were distorted by different timings of various public holidays in 2004 and 2005, with more holidays falling on weekends this year than next year.
Adjusted for that calendar effect, German growth was expected to pick up sharply from 1.3 percent in 2004 and to 1.9 percent in 2005, the ministry calculated.
Furthermore, Clement was confident that strong impulses coming brobust exports would "increasingly feed through to domestic demand and the recovery will gain a broader footing."
Unemployment, too, would decline slightly, helping boost private consumption so that household spending would increase by 0.8 percent next year after stagnating this year, Clement said.
The Bundesbank, however, was more cautious about the extent of the anticipated pick-up.
"Adjusted for varations in the number of working days, the current year will show growth of just under 1.5 percent," the German central bank's chief economist Hermann Remsperger told a banking conference in Stockholm.
"And according to very preliminary estimates for 2005, likewise adjusted for working-day variations, we expect a growth rate slightly above the 2004 outcome," Remsperger added.
The anticipated acceleration would therefore not be as marked as suggested by the government.
Furthermore, the forecast was "a very conditional one," Remsperger continued. "Above all, it depends on the assumption that the oil price will come down from its current level."
Analysts agreed that the runaway price of oil would indeed be the main headache for the German economy.
"With oil prices still rising, the risks to the downside have increased," said Deutsche Bank economist Stefan Bielmeier.
"I'm expecting German growth to slow in the third quarter. The decline in the current assessment component of the Ifo index points in this direction."
Surging oil prices are already fuelling headline inflation in Germany, separate data showed on Monday.
The German consumer price index (CPI) rose by 2.1 percent on a 12-month basis in October, preliminary cost-of-living data compiled by the federal statistics office showed.
That was faster than the rate of 1.8 percent recorded in September.
10/25/2004 - 15:06 GMT - AFP