German budget deficit jumps to 3.5 pct in 1st half

[August 24, 2010]  BERLIN (AP) -- Germany's deficit rose sharply to 3.5 percent of economic output in the first half of 2010, putting it on track to break EU budget rules due to the costs of the global economic and financial crisis, official data showed Tuesday.

Net borrowing for the first six months of the year came in at euro42.8 billion ($54.37 billion) -- more than double the euro18.7 billion a year earlier, the Federal Statistical Office said. In 2009, the agency had reported a much smaller first-half deficit of 1.5 percent.

At the current rate, Germany will this year overshoot the European Union limit for budget deficits to be no more than 3 percent of gross domestic product.

Officials in July said the country expects this year's deficit to come in at 4.5 percent of GDP but that it would be back under the 3 percent mark by 2012.

Though the country has returned to growth after the economy shrank by a painful 4.9 percent last year -- easily the worst performance since World War II -- it continues to feel the effects of the global downturn.

"With some time lag, the impact of the economic and financial crisis and of the relevant government measures taken to support the economy and the financial markets is clearly reflected now in the budgets of the central, state and local government as well as the social security funds," the Wiesbaden-based statistical office said in a statement.

Still, the recovery has come more quickly than anticipated, and the Finance Ministry has said it expects the deficit to fall to 2 percent by 2013.

The statistical office on Tuesday also confirmed preliminary numbers released earlier in August showing the economy surged ahead with 2.2 percent growth in the second quarter -- the fastest pace for at least two decades.

"The economic dynamic shows that the confidence of consumers and investors has returned," said Economy Minister Rainer Bruederle.

Unicredit economist Alexander Koch said an "imminent slowdown" of the global economy will lead to weaker exports for Germany but that the economy still looked on pace for 3.5 percent growth in 2010.

"Even if the extent of the moderation in the growth dynamic is exceptionally uncertain, considering the latest still very expansionary business activity readings, the broad-based upswing of the German economy is likely to continue at a still decent pace in the short term," he said in a research note.

[Associated Press; By DAVID RISING]

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