Germany to slash 2012 growth forecast: source

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Germany will nearly halve its growth forecast for next year when it releases updated projections on Thursday, sources told AFP, as the eurozone debt crisis takes its toll on Europe's top economy.

The government will slash its forecast to 1.0 percent for 2012, compared to the 1.8 percent it had projected in April, the government sources said Wednesday.

The revised forecast, if confirmed, would bring Berlin more into line with those of leading German economic institutes, which last week also cut their view of output growth for 2012 to 0.8 percent.

This year, growth is expected to be 2.9 percent, the sources said, already a slowdown from the healthy 3.7-percent output in 2010.

While Germany has generally weathered the economic storm better than its eurozone rivals, forward-looking indicators in recent weeks have not given grounds for optimism.

The closely watched Ifo index of business confidence has fallen to its lowest level in more than a year and the ZEW think tank said on Tuesday that investor confidence in Germany had plunged to a three-year low.

Moreover, industry, one of the main motors of the German economy, appears to be spluttering, with shops reporting slowing trade and industrial orders down.

Exports, Germany's driving force, have until now been resilient but economists warn that even the world's second largest exporter after China will not be immune for long to a eurozone debt crisis that is hurting world demand.

In a research note published earlier Wednesday, ING analyst Carsten Brzeski said: "The debt crisis has finally reached the German economy. Strong fundamentals, however, should prevent the economy from falling off a cliff."

Brzeski argued that the crisis had even helped Germany to an extent by pushing down the value of the euro, making exports cheaper.

"With Italy and France starting to falter, Germany is also feeling the pain. Fortunately, this is not 2008 and the economy should not collapse.

"Economic fundamentals are simply too sound. However, the eurozone's economic superman may finally have its kryptonite," concluded the analyst.

Even the economy minister has admitted that Germany is beginning to feel the pinch from the ongoing debt dramas.

"The euro debt crisis is hitting Germany's economy. For that reason, Germany has to remain an anchor of stability and growth in Europe," said Philipp Roesler.

The disappointing macroeconomic news from Germany came as markets braced for a marathon session of EU meetings that leaders hoped would come up with solutions to the debt crisis that is undercutting activity around the world.

Eurozone finance ministers will gather in Brussels on Friday, joined by their counterparts from non-eurozone nations on Saturday.

Finally, foreign ministers will hold talks to prepare for the make-or-break summit of leaders that begins on Sunday.

© 2011 AFP

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