Germany needs to lead its fellow eurozone members away from uncertainty, says IMF

The International Monetary Fund (IMF) has increased Germany’s 2014 growth forecast to 1.4 per cent from 1.3 per cent but is divided on whether the country requires more fiscal stimulus (release).

The IMF said it agreed with the German government's prudent economic management and a modest loosening of fiscal policy to boost domestic demand, and warned against cutting spending too quickly. However, directors were split on whether the country needed further stimulus, with most supporting the current policy, but some arguing significant risks to the outlook could merit more proactive stimulus.

The IMF held its growth forecast for 2013 at 0.3 per cent, but said this was heavily dependent on a gradual recovery in the rest of the eurozone and a sustained reduction in uncertainty.

Looking beyond the upcoming election, the IMF said Germany will need to form “a clearly communicated longer-term vision for closer economic and financial integration” to help remove uncertainties for households, firms and financial markets.

The IMF’s growth forecasts are more pessimistic than official government estimates of 0.5 per cent growth in 2013 and 1.6 per cent in 2014.