euro - area enterprises with a bbb rating for bonds with a maturity of 7 - 10 years have to pay an average interest rate of only around 4¾ %. this represents a premium of merely ¾ percentage point over comparable government bonds. on average, this figure has been twice as high since 1999. at the present, corporate bonds are obviously also benefiting from a search for higher yields. furthermore, euro - area bank interest rates are very low. credit standards have not tightened further. 3. economic conditions in germany since early 2004, the economic situation in germany has improved significantly. for a long time, germany ’ s growth lagged behind that of the other euro - area countries. this gap has now narrowed considerably. germany is no longer trailing behind the rest of the euro area. in the second quarter of 2004, gdp increased by 0. 5 %. in the first half of this year the annualised growth rate was 1¾ %. as potential growth in germany is only about 1½ % this means that there was an increase in capacity utilisation for the first time since many years ago. however, the recovery in germany is not broadly based. domestic demand has not yet taken off. growth has been driven mainly by exports. in the first half of this year, exports grew by 6. 2 %, while imports grew by 3. 7 %. from january to august 2004, exports were up by as much as 10. 9 %. this shows that the price competitiveness of the german economy is still very high, which enables german firms ’ to benefit from strong growth in their export markets. it is striking that the appreciation of the euro has had a far less dampening effect on exports than many had expected. it seems that the increase in foreign demand for german products in the wake of the buoyant global economy has more than offset the effects of the exchange rate. exports to the usa, for instance, which declined last year, have improved again. exports to countries outside the eu in particular have increased strongly. from january to july our exports to russia and china both grew by 22. 7 % on the year. despite all these positive figures we must not lose sight of our export dependency. the german economy remains vulnerable to a slowdown in global economic activity. this is the german economy ’ s achilles ’ heel. overall, domestic demand contributed little to growth in the first half of the year. the level of business investment was again disappointing. there was no increase in the second

hermann remsperger : the bundesbank ’ s view of the economic outlook and economic policy challenges speech by professor hermann remsperger, member of the executive board of the deutsche bundesbank, at swedbank ’ s economic outlook conference, stockholm, 25 october 2004. * * * i was very glad to accept your invitation to attend swedbank ’ s economic outlook conference. to a german central banker comparing the economic developments in germany and sweden since the 1990s is interesting for a number of reasons. this also holds true for the question of how we in germany should tackle the current economic policy challenges. just an example : last wednesday i read an article in the financial times with the heading “ can sweden give germany fertile ideas to revive an ailing economy? ”. in the past, sweden was admired by many for its virtually “ perfect ” social welfare system. today, sweden is perceived as an example of successful reforms because it anticipated the need for economic restructuring at an early stage - namely in the early 1990s when the country suffered from a banking crisis and exchange rate problems. sweden reacted by making its labour markets more flexible and adapting its social welfare systems to the new environment. in germany, by contrast, structural reforms had a much lower priority on the agenda in the 1990s. unfortunately, german reunification was not seized as an opportunity to explore new approaches in economic policy. the preparations for european integration also tied up a lot of resources at the time. in the meantime, however, a lot has been done to reform the labour market and the social security system. i will talk more about that in just a moment. but first i would like to make a few comments on the current economic situation and the monetary policy of the ecb. 1. developments in the global economy in the first half of this year, the world economy grew faster than many experts had been predicting in the spring. this is reflected in upward forecast revisions. the imf ’ s september forecast is an example. it suggests that the increase in global output in 2004 could turn out to be 0. 3 percentage points higher and reach 5. 0 % on average. a rate of 4. 3 % is expected for 2005, which would be still pretty dynamic. since in many countries actual gdp growth is above the potential rate, a slight slowing of global economic momentum must not be viewed as completely negative. at the same time we have to take into account that the oil price has undergone further increases since september. in my view,