Crisis to slow German economy sharply next year: institutes

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The eurozone debt crisis will have a major impact on Germany next year, the country's leading economic institutes said Thursday, with Europe's top economy only narrowly escaping a recession.

The economy will grow by a mere 0.8 percent in 2012, the institutes said, a dramatic downwards revision from the 2.0 percent they forecast just six months ago as the eurozone's debt crisis continues to undercut activity.

"In the middle of 2011, the outlook for the world economy deteriorated sharply. In Europe, the debt crisis is broadening out into a banking crisis. This is increasingly affecting the German economy," the institutes said.

"The clear rise in uncertainty will dampen domestic demand and exports will no longer contribute to growth due to the difficult position of our important trading partners," they added.

The German government, which bases its own forecasts on the report, said in April that growth next year would be 1.8 percent but it is also expected to revise that downwards when it unveils updated projections next Thursday.

The economy ministry has already warned in its monthly economic report that risks to growth have increased sharply due to the eurozone crisis.

However, output this year will continue to be relatively robust, the institutes predicted, with growth of 2.9 percent, better than the 2.8-percent outcome the government expects.

© 2011 AFP

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