Under the shadow of a slumping economy and hard-bitten collective bargaining negotiations, Chancellor Gerhard Schröder and industry leaders opened Germany’s largest industry trade fair gushing optimism.

Both Schröder, who gave the opening speech Sunday, and the heads of Germany’s major industry associations said they awaited an imminent turnaround for the German economy and the creation of more jobs.

"There are plenty of reasons to go optimistically into the next few months," Schröder said in Hanover, his home city and host of the 54-year-old fair. Around 700,000 exhibitors and 200,000 visitors are awaited at the fair, seen by many as a barometer for Germany’s industrial branch.

After a disappointing February, in which German industry was shocked by a drop in the number of orders, the branch looks to be on its way back. The head of the Federal Association of German Industry said he expects growth of between 0.75 percent and 1 percent this coming year. The improving world economic situation will also boost German industrial products, typically valued for their high quality.

Adding to the optimism were the heads of Germany’s electronics and machine industry associations. Both saw a slow, but positive turnaround in the second-half of the year.

Labor unrest looms

But observers say potential unrest in Germany’s labor market has dampened the optimism. Germany’s unions and employers are heading for a tough round of negotiations in the coming months.

The country’s largest metal trade union has already launched a series of warning strikes. Other unions promise to stand by their wage increase demands of up to 6 percent over current salaries.

European CEOs, who have already reached agreements with labor unions in their respective lands, will monitor the talks with interest. If German labor gets what they want, German industry would have to push the additional wage costs onto their products – a good thing for competitors.

When the Hanover trade fair was first opened in 1947, it was seen as an opportunity for German industry to show it could rise from the ashes of WWII.

More than 50 years later, it seems history is repeating itself .