Germany's finance ministry yesterday admitted it would miss its budget deficit target for this year, but stressed the figure would remain within the boundaries for Europe's single currency.
The comments followed speculation that this year's deficit could be as high as 3.7 per cent because of weak growth and high unemployment.
German finance ministry admitted its 2.5 per cent deficit target was no longer valid. "It will be more than 2.5 per cent, and the margin below 3 per cent will be very narrow," said Mr Thomas Gerhardt, a spokesman.
Speculation about a serious overshoot was fuelled by reports that the federal statistics office had projected a 3.5 per cent deficit, based on data for the first half of 2002. Concerns were intensified by the finance ministry's admission that it had not met this month's deadline to submit new official budgetary projections to the European Commission in Brussels.
The Reuters/NTC purchasing managers' index, published yesterday, showed manufacturing growth in the 12-nation euro zone slowed for the second month running in August, falling to its lowest level since April.
The index, based on a survey of 2,500 companies, fell to a seasonally adjusted 50.8 last month, barely above the critical 50 mark that separates expansion from contraction. Economists said the figures showed the euro zone manufacturing sector was still expanding, but at a snail's pace, increasing pressure on the European Central Bank for a rate cut move later in the year.
Euro zone retail sales fell more than expected in June, according to data on Monday which underscored the difficulties the economy is experiencing.
The EU's statistics office said euro zone retail sales fell 0.5 percent from the previous month and were down 0.9 per cent from a year earlier. - (Financial Times Service)
