Economists: German GDP growth to fall

Tim Wallace
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A GROUP of top economic institutes slashed their German GDP growth forecasts for 2012 yesterday.

The latest prediction is for growth of 0.8 per cent next year – down from two per cent forecast six months ago.

The eight institutes – six German, one Swiss and one Austrian – believe the sovereign debt crisis is the largest threat to the recovery.

“The debt crisis in Europe is threatening to become a banking crisis which is increasingly weighing on the German economy,” their report said.

“Strongly increased uncertainty will dampen domestic demand and export growth will probably cease due to the situation of important trade partners.”

High commodities prices, the Japanese natural disasters and the US debt-ceiling debacle were also blamed for damaging global confidence.

Germany is seen as particularly vulnerable to falls in external demand because of its reliance on exports, the report warned. The country recovered strongly from the recession, growing by 3.6 per cent in 2010 – largely because of export growth.

A decline in inflation is also forecast, from 2.3 per cent this year to 1.8 per cent this year. The institutes believe this will play a role in prompting the European Central Bank to cut interest rates to one per cent in 2012.

The report also criticised European governments for failing to establish an “insolvency mechanism” for countries.

•The Portuguese Prime Minister unveiled further austerity measures yesterday to fend off default. Pedro Passos Coelho said the country is in a period of “national emergency”.