The Paris-based Organization for Economic Cooperation and Development is scaling back its growth projections for Europe and Japan. The economic think tank is particularly concerned about the weak German economy.
In a teleconference from Paris, OECD economist Robert Price says 2003 growth projections for Germany may be cut by nearly one percent from what was forecast only ten weeks ago. Calling Germany a special problem in Europe, Mr. Price says economic indicators there have been declining for five consecutive months. Germany accounts for over half of Europe's output and its economy hardly grew at all last year. Mr. Price says German industry is cutting its labor force and that inexplicably the growing service sector is failing to add jobs.
"The industrial sector in Germany of course is still quite vibrant. It grows quite substantially, but mainly by productivity growth and labor shedding. The problem in Germany is that this labor shedding does not then feed into service sector employment growth. So obviously there is this disjunction there. Our view is that in terms of cyclical responses, related to what I've just said, the German economy does not function properly," he said.
Mr. Price says the German economic problem is structural, too much rigidity in the labor market that makes it hard to hire and fire people and excessively generous social programs.
The OECD will update its economic forecast in April. Currently, it expects U.S. output to expand by about two and a half percent this year, unchanged from what the OECD forecast 10 weeks ago. Hardly any growth is expected in Japan.