Mollemann warns on risk of recession

BONN (Reuter) - Germany's Economics Minister, Jurgen Mollemann, yesterday warned that the economy was threatening to plunge into recession.

In his monthly economic report Mr Mollemann blamed the weakness in the third quarter on a combination of home-made economic problems, the effects on Germany of continued weakness in the world economy and uncertainty about the ratification of the Maastricht treaty. 'The German economy is currently in a critical phase,' he said.

Otto Lambsdorff, who heads the Free Democratic Party in Helmut Kohl's coalition government, said Germany would remain in recession in 1993, with unemployment set to rise and a growing number of firms in dire financial straits.

Mr Lambsdorff said many of Germany's economic problems were 'home-made.' Federal spending was now under control, but states and municipal governments had failed to cut spending to take post-unification burdens into account, he said.

Mr Lambsdorff ruled out any additional tax increases before 1994, saying such measures would make it impossible for Germany to pull out of recession. But he repeated his call for a cut in real income levels to near 1989 levels.

Otmar Issing, a member of the Bundesbank council, said German inflation was unlikely to ease in coming months, due in part to a 1 percentage point increase in value-added tax from January.