Bloomberg News

German Institutes Cut 2012 Forecast, See No Recession

October 13, 2011

(Updates with details on the economy from seventh paragraph.)

Oct. 13 (Bloomberg) -- Germany’s top economic institutes cut their 2012 forecast for growth by more than half as the spiraling debt crisis weighs on banks and spending, though they said Europe’s largest economy will probably avoid recession.

German economic growth will slow to 0.8 percent next year from 2.9 percent in 2011, according to a bi-annual independent report commissioned by the German government. In April, the group forecast 2 percent economic growth for 2012.

“Strongly intensified uncertainty will dampen consumption and investment -- and exports will offer no more positive impulses because of the difficult situation among several important trade partners,” the group said in its report published in Berlin today.

Any worsening of the European debt crisis spurred by a collapse in confidence in financial markets and a lack of political changes in countries such as Italy would have “massive negative effects” on the euro area and Germany, the group said. Still, the institutes said they “don’t expect it to come to this.”

Germany’s budget deficit will narrow to 0.9 percent of gross domestic product on a nominal basis this year, meeting the euro area’s fiscal rules for the first time since 2008 on the back of a surge in tax revenue generated from export-led growth, the report said. The deficit should narrow further to 0.6 percent in 2012.

The 17-member euro region, the destination of most of Germany’s exports, will probably report an average economic growth rate this year of 1.5 percent followed by 0.4 percent in 2012, according to the group.

Unemployment to Fall

German unemployment, which typically reflects companies’ longer-term investment plans, will continue to fall in 2012, said the economists. The rate will decline from 7.0 percent or 2.96 million this year to 6.7 percent or 2.81 million in 2012, the institutes said.

The group’s forecast tallies with the view of German business leaders. Deutsche Bank AG Chief Executive Officer Josef Ackermann said growth should be “nearly” 1 percent next year after “what will certainly be a difficult winter period 2011/2012.” The risk of a double-dip recession is “limited -- at least for the German economy,” Ackermann said today in a speech in Berlin.

German inflation will average 2.3 percent this year before the effects of eased global commodity prices help depress the rate to 1.8 percent in 2012, said the group.

The four economic institute groups compiling the review are Munich’s Ifo institute with the KOF institute in Zurich; the IfW institute in Kiel with the ZEW Center for European Economic Research; the IW Halle institute with Kiel Economics; and the RWI Essen institute with the Institute for Advanced Studies in Vienna.

--With assistance from Nicholas Comfort in Frankfurt. Editors: Eddie Buckle, Leon Mangasarian.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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