Flood Repairs Fail To Boost German Industry
Another 80,000 jobs expected to go this year

September 3, 2002

Germany's builders warned on Tuesday that reconstruction following last month's devastating floods would provide limited relief from further contraction in the country's biggest industrial sector.

The construction industry federation forecast that the weak economy and public spending cuts meant another 80,000 jobs would be lost this year. That would reduce employment to about 870,000 from its post-reunification peak of 1.4m in 1995.

The gloomy prediction of more job losses and company closures came as economists forecast that unemployment figures for August, due on Thursday, would reveal another marked increase. "The economy has not yet regained enough momentum to stop the rise in unemployment," noted David Walton of Goldman Sachs in London. "We expect the number of unemployed to rise by 20,000."

The closely watched unadjusted unemployment figure is expected to stay above the politically sensitive 4m mark, less than three weeks before the general elections on September 22.

Leaders of the opposition Christian Democrats have been hoping the poor data could help Edmund Stoiber, conservative challenger for chancellor, shift the focus in the electoral campaign back to economic issues. Mr Stoiber's strong campaign lost momentum last month as the floods in eastern Germany put Chancellor Gerhard Schröder back on centre stage.

Herman Franzen, president of the country's leading retailers' association, will on Thursday tell a news conference in Düsseldorf that trading conditions remain very tough after a "catastrophic" summer. The retailers' federation in June revised its previous pessimistic forecast of a small contraction in sales this year to a much gloomier 2.75 per cent drop.

The Düsseldorf meeting will coincide with the publication of official retail sales data for July, which some economists expect to show an improvement. However, even if the July data are encouraging, Mr Franzen is expected to stress any upturn comes after seven unbroken months of decline.

Meanwhile, the construction industry, in its seventh consecutive year of falling employment, is even more despondent. Ignaz Walter, president of the construction industry federation and head of one of Germany's biggest building groups, said yesterday he expected employment in the sector to drop by at least 10 per cent this year.

Mr Walter blamed the crisis on the weak economy, which had severely reduced commercial building. Matters had been exacerbated by difficulties facing banks and insurers, two big investors in construction, he noted.

While rebuilding after the floods would absorb some spare capacity in eastern Germany, where the post-reunification adjustment process has been most severe, Mr Walter warned it would not be a lasting palliative. "At best, there'll be a regional, and only temporary, recovery," he said.

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