A CUT in German interest rates is expected about autumn, according to a Salomon Brothers economist who is 'mildly optimistic' about the German economy.
'And there is limited room for a rally in the bond market,' said Gunther Thumann, vice-president (economic and market analysis) who is based in Frankfurt. He previously worked by the Bonn government and helped draw up fiscal policies.
Mr Thumann forecast a depreciation of the deutschemark to 1.50 marks to US$1 in 12 months, from 1.38 marks.
He believed a number of factors, including a low M3 money supply, slowing economic growth and a temporary dip in inflation, were conducive to the trend.
Amidst a series of policies aiding consolidation of the economy, Mr Thumann expects a deficit of 20-25 billion marks (about HK$111.9-$139.8 billion), equivalent to 1.5-1.75 per cent of gross domestic product.
He said the burden from the unification of east and west Germany would remain for another five or six years at least. 'There are state-run companies and socialist practices to be reformed. That can't be done overnight.' The government was trying to restrain expenditure and boost investment incentive just as it did successfully in the 1980s.
