A poll of 2,025 firms by the Institute for the German Economy (IW), a business-funded think tank, showed nearly 50% of those polled expect output to rise in 2007. All told, the IW forecast the German economy would expand by a good one-and-half percent next year, when overall growth is expected to suffer at the hands of a three percentage point increase in value added tax (VAT) on January 1.
Only 10.9% of the businesses polled said they expected production to decline in 2007, the IW said. Economists say the Vat effect is likely to be felt most of all by companies that focus on the domestic market. However, the IW said the tax increase should not herald an end to a recent improvement in the labour market, which has gained some 190,000 jobs in the first nine months of 2006. Theres no doubt the upswing has reached the labour market, IW director Michael Huether said in a statement.
The Cologne-based institute predicted Europes largest economy would expand this year by almost 2.5%, which would be Germanys strongest performance since 2000. In a sign of the improved conditions, German drugs and chemicals group Bayer said on Monday it aimed to raise its profit significantly in 2006 after posting third quarter earnings figures which beat a Reuters consensus forecast. The firm, whose shares were up around 2.25% at 1045 GMT, said it now expects underlying EBIT in the order of 3.5 billion euros, up from 3.158 billion a year earlier.