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German economy heads for 'stagnation'

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German economy heads for 'stagnation'
Photo: DPA
18:32 CEST+02:00
Germany may not be on the brink of a severe recession, but the country long seen as the financial powerhouse of Europe appears to be headed for economic stagnation.

That is the verdict from experts monitoring the country's economic situation as the continent struggles to take the weight of supporting Greece's precarious economy, the increasing uncertainty surrounding the future of the euro and rapidly fluctuating markets.

The Macroeconomic Policy Institute (IMK) in Düsseldorf has scaled back its forecast for Germany's growth in gross domestic product by 0.8 percentage points to 3.2 percent for the year. Next year, it predicts little, if any growth – a GDP increase of just 0.7 percent.

“We expect a stagnation,” said Gustav Horn, a director at the IMK, blaming the burden of massive public savings programmes and scepticism about further investment and economic development. “The euro crisis has not been overcome.”

Horn also predicted reduced demand for German exports next year, an increase of just under 4 percent over this year.

There is “noticeably subdued export demand,” he said.

The Allianz insurance group, which also monitors the country's economy, had a similar, if slightly less downbeat, outlook on the future.

One of its chief economists, Michael Heise, said Germany would experience, at worst, “a temporary pause in growth.”

But that depends on what happens in global markets. If widespread recession begins to take hold elsewhere, Germany would also be affected, he said.

Politicians need to "find ways to get the threat and uncertainty caused by this crisis under control,” he said.

Markets have given mixed responses to European leaders' efforts to patch up the continent's financial troubles over the last few days. After the German Bundestag voted to increase the size of the eurozone bailout fund last week, the DAX, Germany's index of 30 leading blue-chip companies, vacillated wildly.

On Wednesday afternoon it appeared to be on the upswing again – up nearly 4 percent over the previous day.

The Local/DAPD/mdm

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