Consulate General of India

CONSULATE GENERAL OF INDIA

FRANKFURT

MONTHLY ECONOMIC AND COMMERCIAL REPORT

JUNE 2010

EXECUTIVE SUMMARY

Most Germans felt unaffected by economic crisis

Family-owned firms show resilience during economic crises

Bundesbank hikes 2010 growth forecast

German Industrial Output Grew in April

Jobless rate drops amid growing confidence

Berlin Budget Deficit Much Lower than Expected

European leaders agree to call for global banking tax

German tax crackdown may yield 1.5 bln eur

Anxious middle class shrinks as gulf between rich and poor grows

German development company GTZ announces rising revenues

General Motors drops all bids for European aid for Opel

Lufthansa announces higher ticket prices

Reports say Anshu Jain could be in lead to be next CEO of Deutsche Bank

Bayer MaterialScience invests in integrated production network

Bankrupt Karstadt chain finds US-German buyer

India Meets Frankfurt Rhein Main - Let’ s talk business!, 02 June 2010

India Week held in Cologne, 11 – 19 June 2010

Annual Meeting of the Indo-German Chamber of Commerce in Düsseldorf -16 June 2010

Students’ Exchange Programme from SpringdalesSchoolDelhi, 11th June 2010 to 23rd June 2010

"Indo-German Family Day", 21 June 2010

GERMAN ECONOMIC NEWS

European Central Bank Monthly Bulletin June 2010

5

Based on its regular economic and monetary analyses, the Governing Council decided at its meeting on 10 June 2010 to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the new information which has become available since its meeting on 6 May 2010, the Governing Council continues to expect price developments to remain moderate over the policy-relevant medium-term horizon.

Turning to the economic analysis, euro area economic activity has been expanding since mid-2009, after a period of sharp decline. According to Eurostat’s first estimate, euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. While adverse weather conditions, in particular, dampened growth in the early part of the year, the latest economic indicators suggest that a rebound took place during the spring. This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 0.7% and 1.3% in 2010 and between 0.2% and 2.2% in 2011. Compared with the March 2010 ECB staff macroeconomic projections, the range for real GDP growth this year has been revised slightly upwards, owing to the positive impact of stronger activity worldwide in the short run, while the range has been revised somewhat downwards for 2011, reflecting mainly domestic demand prospects.

With regard to price developments, euro area annual HICP inflation was 1.6% in May 2010, according to Eurostat’s flash estimate, after 1.5% in April. The rise in inflation over recent months mostly reflects higher energy prices. This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.4% and 1.6% for 2010 and between 1.0% and 2.2% for 2011.

Turning to the monetary analysis, the annual growth rate of M3 was unchanged at -0.1% in April 2010. The annual growth rate of loans to the private sector increased somewhat further and turned positive, but remained weak at 0.1%.

To sum up, according to ECB, the current key ECB interest rates remain appropriate. Taking into account all the new information which has become available since its meeting on 6 May 2010, the Governing Council continues to expect price developments to remain moderate over the policy-relevant medium-term horizon. Global inflationary pressures may persist, while domestic price pressures are expected to remain low. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010, but quarterly growth rates are likely to be rather uneven. Looking ahead, the Governing Council expects the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and unusually high uncertainty. Overall, the Governing Council expects price stability to be maintained over the mediumterm, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the aim of keeping inflation rates below, but close to, 2% over the medium term.

As regards fiscal policies, the Governing Council welcomed the recent decision by euro area countries to formally establish a European Financial Stability Facility. This needs to be accompanied by decisive action at the level of governments.

German Economy

Most Germans felt unaffected by economic crisis

Less than one-third of Germans have felt personally affected by the global financial crisis, according to a new survey.Some 29 percent of Germans who responded to the worldwide survey conducted by Boston Consulting Group (BCG) said they had experienced the economic fallout of the crisis. Only the Chinese felt further removed from the crisis, with 25 percent of participants saying they had been affected. Meanwhile a much greater proportion of Americans and Russians, 49 and 71 percent respectively, said they’d felt the pinch. Seventy-seven percent admitted they hoped to devote more energy to money-saving endeavours, and 73 percent said they had fun doing so.Despite their good fortune in avoiding the economic downturn, half of the Germans surveyed said they were still worried about the future, though their mood is improving, the study found. The number of Germans who said they planned to cut their expenditures fell from 64 percent last December to 44 percent.

Family-owned firms show resilience during economic crises

A powerful force of family-owned businesses is doing its part to keep the Germany's economy afloat. As the global economy struggles to recover from recession, all eyes are on the fates of publicly traded, multinational conglomerates. In Germany, the 30 largest DAX-listed companies like Deutsche Bank, Siemens, Deutsche Post or Deutsche Telekom tend to dominate media coverage. Family-run enterprises make up more than 50 percent of Germany's gross domestic product, and experts say they provide a catalyst for job growth. Nine out of 10 companies in Germany are owned by families. Those companies are often marked by flexibility, long-term planning, responsible business practices and a willingness to give young people that valuable first job. Some relentlessly ambitious families grow their businesses into national chains and occasionally run afoul of the law. For instance Anton and Christa Schlecker, owners of the international drugstore chain bearing their last name, were each sentenced to 10 months probation and a million-euro fine in 1998 for cheating some of their employees. But according to Johann Eekhoff of the Institute for Small Business Research in Bonn, family-run enterprises tend to follow better business practices than their publicly-traded counterparts. They tend to think in terms of generations rather than quarters and hope their businesses will also provide their children with a livelihood. In a time of economic difficulties, family-run enterprises are helping to keep unemployment in check. But family-run enterprises do not only appeal to young people. According to the Emnid market research institute in Bielefeld, 60 percent of all German employees work for a family business, and 90 percent say they would like to.

Bundesbank hikes 2010 growth forecast

The Bundesbank boosted its growth forecast for Germany for this year, as Europe's biggest economy cashes in on the gradual global recovery.The German central bank said in its twice annual outlook that it expected gross domestic product (GDP) to expand 1.9 percent in 2010, versus the 1.6 percent it had predicted in December. Next year, the economy is seen growing 1.4 percent, against the 1.2 percent previously forecast. The Bundesbank said that it saw the risk to German economic growth posed by fears over other eurozone countries defaulting on loans as "limited." The German government has forecast 1.4 percent growth this year and 1.6 percent in 2011. The Bundesbank said the country could see a slight uptick in unemployment in the next two years but noted that the German job market had weathered the economic crisis well. The official unemployment figure in 2011 could be 3.4 million, which is equivalent to an unemployment rate of 8.0 percent. German joblessness in May fell to 7.7 percent of the workforce. On inflation, the central bank said that higher oil prices and the depreciation of the euro could cause a moderate rise in consumer prices of 1.2 percent in 2010 and 1.6 percent in 2011.

German Industrial Output Grew in April

Germany's roaring export economy continued to benefit from the global recovery in April, when the country posted a €11.8 billion ($12.4 billion) account surplus and a 13.3% rise in industrial output from a year ago. Government data showed that foreign trade continued to help offset sluggish domestic demand. Industrial output was also up 0.9% in April against the previous month, building on a 4.3% monthly surge in March. April manufacturing orders rose 2.8% from a month earlier and 29.8% from a year ago, foreshadowing further output gains in the months ahead. The strong production and output figures suggest that gross domestic product could grow robustly in the second quarter, and support the government's current forecast of 1.4% growth for 2010. The share of German exports that go to the 15 other countries that use the euro is steadily declining, the statistical office's data showed, as is the share of German imports that come from those countries. German exports were up 13.2% in the first four months of 2010, but exports to the euro zone rose just 7.9%. Total imports from January to April were up 9.2%, while imports from the euro zone rose just 7.4%.

German industry leader predicts job market boom

The head of the German Chambers of Industry and Commerce (DIHK) has spoken of "a job miracle" in German industry, and predicted 100,000 new jobs by the end of the year. Martin Wansleben, head of the German Chambers of Industry and Commerce (DIHK), predicted a speedy upturn in Germanindustry. DIHK chief economist Volker Treier, had earlier said that German industry would be able to scale back its Kurzarbeitor “short-time work” schemethis year. Treier told that some 90 percent of workers put on reduced hours during the financial crisis would be back in full-time employment in the foreseeable future. According to Wansleben redundancies would stop, and there would be a plus of 100,000 workers this year. There are new jobs already being created, particularly in the IT, health, aviation and chemical sectors. But some industry leaders expressed caution. Gustav Horn, director of macroeconomics at the Hans Boeckler Foundation research center believes that it is too early to say. But other research institutes are more optimistic. The IFO researcher warned that the government's short-timework system - where companies only pay their staff the hours they actually work and the government picks up the bill for their social welfare contributions - needs to be handled with caution in the next few months. Wansleben did express concern about the lack of new blood in the workforce.Up to 50,000 apprenticeship positionswereunfilledin 2009 within the DIHK alone. This came a day afternew figures showed that Germany's school system was failing to train young people to an adequate standard for these empty positions.An education ministry reported revealed that 17 percent of young Germans aged between 20 and 30 have no vocational qualification and are no longerin the education system. This represents over 1.5 million people.

Jobless rate drops amid growing confidence

Germany has got another economic confidence boost with unemployment falling to roughly the same rate it was before the financial crisis.The federal labour office said that 7.5 percent of the workforce was out of jobs in June, down from 7.7 percent in May, while the total number of unemployed fell 88,000 to 3.15 million. Compared to June 2009, the total was down 257,000. Unemployment is at its lowest level since December 2008. Office said the healthy labour market development of last month has continued in June. The fundamental indicators have once again improved. The unemployment now stood at its lowest level since December 2008. Stripped of seasonal effects skewing the figures, the adjusted number of jobless fell 21,000 from May, the labour office said, compared with a projected drop of 25,000 according to economists polled by Dow Jones Newswires.

Half of Germans want the Deutsche mark back

Eleven years after the introduction of the euro every second German still longs for the return of the Deutsche mark, according to a new poll.Some 51 percent of those surveyed by market research institute Ipsos admitted they wanted their old currency back. Just 30 percent said that they rejected the idea, while another 18 percent were undecided, the Hamburg-based institute reported. German confidence in Europe's single currency has been rocked in recent months by the Greek debt crisis and the eurozone's ensuing bailout of Athens. Though it remains considerably stronger versus the US dollar than the mark was back in 1998, the euro's precipitous decline has sparked concern in Europe's largest economy. People between 50 and 64-years-old said they wanted to see a mark comeback, a desire echoed by only 42 percent of those between 16 and 29. The split between eastern and western Germany was marginal, with 52 percent of those in the west and 48 percent in the east saying they preferred the mark to the euro.

Berlin Budget Deficit Much Lower than Expected

With tax revenues pouring into German coffers faster than expected, 2010 budget deficit forecasts have been revised downward. Berlin may need 37 billion euros less credit than forecast over the next two years -- a fact that may increase US pressure on Berlin to abandon austerity.Early June Chancellor Angela Merkel's government put together an €80 billion austerity program designed to trim the country's budget deficit substantially in coming years. Higher-than-expected tax revenues and lower-than-expected unemployment have resulted in a new forecast which foresees the 2010 budget deficit coming in at between €60 billion and €65 billion. Government sales of mobile phone frequencies also improved the bottom line. The situation in 2011 could see debt of €55 billion – compared to previous projections of almost €72 billion.Much of the increase in tax revenue came from value-added tax, which rose by 6.5 percent against the same month one year ago. In addition, import levies on goods from non-European Union countries rose by 23 percent. German companies are optimistic as well. The Ifo business climate index -- Germany's leading economic indicator, which is based on a monthly survey of some 7,000 companies -- continued its upward trend despite analyst’s negative expectations. A new constitutional amendment in Germany requires that the government reduce its budget deficit to €8.5 billion by 2016. The government hopes to reduce borrowing by some €10 billion per year until then.

Nobel Economist Krugman Slams German Austerity

Nobel prize-winning economist Paul Krugman said that Germany has begun imposing austerity measures far too soon and that it could endanger fragile economic growth.With the economy on the slow road to health, according to German Chancellor Angela Merkel, it is time to introduce far-reaching reforms of the global financial system.Opposition to her reform proposals is widespread and, frustration is building with Germany's new focus on budget consolidation and debt reduction. He said now is not the time to be worried about deficits when the economy is at 7 or 8 percent below its normal capacity and interest rates are at zero. His concern is that German austerity could ultimately have a negative impact on an already fragile US economy and that Berlin is hoping to resuscitate its economy solely through exports. He said that other countries in Europe would suffer as a result of Germany's savings package. Last week, US President Barack Obama sent a letter to other G-20 countries in which he fired a not-so-subtle shot across Berlin's bow. Germany and France were hoping that the G-20 summit would focus on measures aimed at reforming global financial markets. In particular, Merkel would like to see an international tax on financial transactions as well as a mandatory bank levy, which would go towards a fund to be used to bail out banks in future crises. But opposition to both proposals has been stiff.

German opposition offers to help government with austerity programme

Germany's opposition Social Democrats have promised the government not to block its planned austerity measures. The leader of the German opposition Social Democrats (SPD), Sigmar Gabriel, has saidhis party isprepared to work together with Chancellor Angela Merkel's center-right government to endorse"necessary" austerity measures to reduce the national deficit. Gabriel said the SPD does not intend to attempt to block the government but has proposed anumbers of cost-cutting measures,focusing ongovernment subsidies, to resolve the budget problem. The Social Democrats proposed cuts totaling10 billion euros ($12.2 billion) per year by focusing on cutting government subsidies, said Gabriel. A reduction in value added tax for hotels passed earlier this year would have to be withdrawn and the top tax rate for high earners should be increased by three percent, Gabriel said. Earlier the austerity package had sparked a heated debatewith some in the coalition defending the package while opposition, social justice advocates, unions and German cities slammed the plan as unjust.The German Association of Cities said it feared the new budget would create additional burdens for already struggling communities. But the Munich-based Institute for Economic Research, (Ifo) said the package was just. The Confederation of German Trade Unions (DGB) said that cutting unemployment benefits would lead to higher unemployment. According to those opposing, the strong shoulders aren’t being burdened, but instead the weak.

German car suppliers face tough times