German growth set for big slowdown next year: Bundesbank

9th December 2011, Comments 0 comments

Growth of the German economy will slow sharply next year as the crippling debt crisis puts the brakes on activity in Europe's economic powerhouse, the Bundesbank said on Friday.

"Following a 3.0-percent rise in economic output in the current year, the pace of expansion in Germany is likely to fall perceptibly to 0.6 percent in 2012," the German central bank wrote in its regular monthly report.

That represented a downgrade in the Bundesbank's growth forecast for next year after it had previously been pencilling in economic expansion of 0.75 percent.

The sovereign debt crisis harboured "considerable downside risks," the central bank warned, but added: "Even so, the domestic conditions for an extended, broadly based upswing are still intact."

The Bundesbank said its latest projections were based on the assumption that there would be no further significant escalation of the government debt crisis.

It was working from a baseline scenario where current uncertainty on the part of investors and consumers would "gradually recede somewhat", enabling the euro area to gradually return to a sound growth path, the Bundesbank wrote.

"Under these conditions, Germany might see gross domestic product growth of 1.8 percent in 2013," which effectively meant the German economy "would be operating, by and large, at normal capacity," it said.

In the near term, however, the German economy would face "a lean period in the winter months."

That view was shared by the economy ministry in Berlin, which said that "following strong growth so far this year, the economy will shift into a lower gear in the fourth quarter."

In its own regular monthly report, the ministry attributed the anticipated slowdown less to domestic factors than to a "cloudier international and European outlook in face of the debt crisis.

"No substantial growth impulses can be expected from foreign trade," the ministry wrote.

Earlier, the national statistics office Destatis published new data showing a drop in exports -- traditionally the driving force behind economic activity in Germany -- in October.

German exports were down by a bigger-than-expected 3.6 percent in October from September, causing the trade surplus to contract, Destatis said.

Chris Williamson, director and chief economist at Markit in London, said that while the data highlighted "the weakness in what was the eurozone's main engine of economic recovery earlier this year... we must be careful in reading too much into the monthly data, and the three-month trend in German exports is still showing growth of 1.8 percent."

Natixis economist Peter Kaidusch also said the drop in export was "not dramatic."

"For the time being, German exports should remain in more shallow waters. October's softening was more pronounced than expected but it 'had' to come," the economist said, noting that exports remained at a high level.

© 2011 AFP

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