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Europe's top economy halves 2013 GDP forecast

Germany’s growth weakest in four years

AFP-JIJI

Germany turned in its weakest growth in four years in 2012, data showed Tuesday, and the government halved its forecast for 2013 as the debt crisis continues to hit Europe’s top economy.

The national statistics authority, Destatis, calculated that German gross domestic product expanded by a feeble 0.7 percent in 2012, after notching up growth of 4.2 percent and 3.0 percent respectively in 2010 and 2011. This year, growth is set to slow even further, the government believes.

In its annual economic report set to be published on Wednesday, the government has slashed its growth forecast for the current year to 0.4 percent, an Economy Ministry source said.

Until now, Berlin has been pencilling in growth of about 1.0 percent for 2013, but the source said the number “will be closer to 0.4 percent.” That number, however, would rebound again to 1.6 percent in 2014.

Throughout the crisis, Germany has fared better than its European neighbors thanks in part to deep and painful economic reforms it undertook a number of years ago.

The eurozone as a whole is, in fact, in recession and one that is set to deepen further, forecasters at leading German, French and Italian think tanks said last week.

Owing to the extent of the downturn around it, German growth slowed last year from 0.5 percent in the first quarter to 0.3 percent in the second quarter and 0.2 percent in the third.

Destatis’ top statistician, Norbert Raeth, said GDP likely contracted by “around a quarter of a percentage point” in the period from October to December.

Nevertheless, analysts believe the lull in growth will prove only temporary.

Destatis chief Roderich Egeler insisted that “overall, the German economy proved itself to be very robust.”

Growth was powered by strong exports and solid private consumption, while investment was weak.

The comparative health of the German economy has enabled it to get its finances in order.

For the first time in five years, the overall state budget — which covers both the federal government, the regional and municipal authorities, as well as the social welfare administration — showed a bigger-than-expected surplus of €2.2 billion ($2.9 billion), equivalent to 0.1 percent of GDP.

In 2011, the overall state budget had shown a deficit of 0.8 percent.

“The end-of-year accounts are very pleasing,” said Finance Minister Wolfgang Schaeuble.

“We have continued to keep house very well and used the positive economic environment to consolidate our budget. Our goal of presenting a budget next year without any structural new debt is within reach,” Schaeuble added.

ING Belgium economist Carsten Brzeski predicted that Germany’s sound economic fundamentals “should ensure another solid growth performance in 2013.”

Private consumption should remain stable and “financing conditions have never been more accommodative in Germany than at present,” he noted.

UniCredit economist Andreas Rees said “it goes without saying that the ‘sine qua non’ is a further calming of financial markets and additional progress in tackling the eurozone crisis. But in our view, the outlook for financial markets and the general economic backdrop in Germany and abroad is promising,” he said.

Berenberg Bank economist Christian Schulz said “the outlook for a growth recovery in 2013 is good, despite the weak starting point.

“The euro crisis is fading, confidence has rebounded towards the end of 2012,” Schulz said. “Germany should be able to return to trend growth rates quickly and could experience a little V-shaped rebound in the first quarter already.”

Timo Klein, of IHS Global Insight, projected GDP growth of 0.9 percent for 2013.

“This assumes that the dip in GDP in fourth quarter 2012 will prove a one-off that is quickly overcome in the first quarter,” he said.

Commerzbank chief economist Joerg Kraemer said that “as the sovereign debt crisis abates, the German economy should start picking up in the first half of 2013. Most leading indicators are already pointing upwards.”