Crisis to slow German growth in 2012: government

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The eurozone crisis will hit Germany hard next year with growth expected to be dramatically lower than previously thought, the government said on Thursday.

Berlin said it expected growth of 1.0 percent next year in Europe's biggest economy, almost half the 1.8 percent forecast in April, as economic woes in the eurozone undercut activity in Germany's main trading partners.

"The rate of growth has, as expected, slowed somewhat," said Economy Minister Philipp Roesler.

"The reason for this slightly slower growth path is the risk from the international environment, which has increased significantly.

"With the higher uncertainty due to the debt crisis in several countries, global growth rates have cooled markedly," he added.

While output growth this year is still relatively buoyant, at 2.9 percent, thanks to a very strong first quarter, the economy is poised to slow very sharply towards the end of this year and at the start of 2012.

Germany's leading economic institutes last week forecast that growth would slow to almost zero in the fourth quarter of 2011 and the first quarter of 2012, with the economy only narrowly escaping a technical recession, defined as two consecutive quarters of contraction.

However, Roesler dismissed this suggestion, stressing: "There is no discussion of recession ... 1.0 percent growth is still growth. The trend is still upwards."

And he drew attention to the fact that unemployment was still slated to decline next year, to an average rate of 6.7 percent, compared to 7.0 percent this year.

The German economy suffered badly during the 2008 debt crisis, registering its worst recession in six decades, before rebounding strongly with 3.7-percent growth in 2010.

But a spirit of optimism on the German economy has dissipated rapidly as the crisis refuses to go away and leading indicators are pointing to a bumpy road ahead.

Investor sentiment hit a three-year low, according to the ZEW institute this week and business confidence is at its lowest level since June 2010.

Industry appears to be slowing and retail sales have also hit the skids, suggesting the economy will not get significant impulses from domestic demand.

For the moment, exports are holding up but analysts warn that this crucial motor for the German economy will also begin to splutter soon as a global slowdown hits demand for goods made in Germany.

Roesler however sought to put a gloss on the figures, saying: "The German economy is doing well ... it remains on a growth path. For Europe, we are still an anchor of stability and a growth motor," he said.

"We have come out of the crisis much faster than we thought or hoped," said the minister.

Moreover, the future is bright, he said, forecasting average growth rates of 1.7 percent until 2016, above Germany's estimated potential growth of 1.4 percent.

© 2011 AFP

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