• Germany's news in English

Crisis to slow economy sharply next year

The Local · 13 Oct 2011, 11:46

Published: 13 Oct 2011 11:46 GMT+02:00

Facebook Twitter Google+ reddit

The economy will grow by a mere 0.8 percent in 2012 as Europe's sovereign debt crisis continues to undercut activity, the institutes said. A dramatic downwards revision from the 2.0 percent they forecast just six months ago.

"In the middle of 2011, the outlook for the world economy deteriorated sharply. In Europe, the debt crisis is broadening out into a banking crisis. This is increasingly affecting the German economy," the institutes said.

"The clear rise in uncertainty will dampen domestic demand and exports will no longer contribute to growth due to the difficult position of our important trading partners," they added.

The German government, which bases its own forecasts on the report, announced in April that 2012 growth would be 1.8-percent. It is expected to revise that downwards when it unveils updated projections next Thursday.

Economy Minister Philipp Rösler acknowledged that the crisis was affecting Germany but also noted that the institutes predicted a fall in unemployment from 7.0 percent in 2011 to 6.7 percent next year despite the slowdown.

"The euro debt crisis is hitting Germany's economy. For that reason, Germany has to remain an anchor of stability and growth in Europe," he said in a statement. "We can make a contribution with our strong competitiveness as well as a positive trend on the labour market and our solid public finances."

Rösler's ministry had already warned in its monthly economic report that risks to growth have increased sharply due to the eurozone crisis.

However, output this year will continue to be relatively robust, the institutes predicted. Growth should be at 2.9-percent, better than the 2.8-percent outcome the government expected.

Europe's powerhouse economy recovered from the last crisis better than most. After a crippling recession where output contracted by around 5-percent in 2009, Germany bounced back with spectacular growth of 3.7-percent last year.

A government-backed scheme to reduce employees' hours kept a lid on unemployment and Chancellor Angela Merkel poured billions of euros into the economy as a stimulus measure to keep the wheels turning.

The positive trend continued into the first quarter of 2011 but analysts were shocked at a disappointing second quarter as the economy shuddered nearly to a halt, registering meagre 0.1-percent growth.

Since then, forward-looking indicators for the economy have not given grounds for optimism. The closely watched Ifo index of business confidence has fallen to its lowest level in more than a year and investor confidence is also on the decline.

Industry, one of the main motors of the German economy, appears to be spluttering, with shops reporting slowing trade and industrial orders down.

Exports, Germany's driving force, have until now been resilient but economists warn that even the world's second largest exporter after China will not be immune for long to a eurozone debt crisis that is damaging world demand.

Story continues below…

The institutes predict the economy will crawl along for the rest of the year, with expected output of 0.6-percent in the third quarter and a further contraction of 0.2-percent in the fourth.

However, the silver lining to the cloud was the projection for Germany's public deficit.

As Berlin insists that other debt-wracked eurozone countries reduce their deficits as quickly as possible, Germany seems to be leading the way, with 2011’s estimated deficit of 0.9-percent of Gross Domestic Product predicted to fall to 0.6-percent in 2012.


The Local (news@thelocal.de)

Facebook Twitter Google+ reddit

Your comments about this article

12:27 October 13, 2011 by lwexcel
Germany is going to get hit really hard on this one. Since the last financial crisis the entitlement class has actually grown, and the new entrants have not just been immigrants(as many people love to claim), but older Germans that have not quite reached their retirement age, and recent graduates that are struggling to find work. These numbers are not so bad when the country is experiencing above average growth but it will be a crippling factor when the economy hits the skids next year.

Next many young adults that do get jobs are starting with pretty low salaries and will see them get even lower as inflation spreads throughout the euro zone.

Add these two factors to the problems with the financial system and you begin to realize that Germany is not going to be so lucky this time around.
13:31 October 13, 2011 by ChrisRea
@ lwexcel

How much did the entitlement class grow? What is your information source?
21:23 October 13, 2011 by lwexcel
Today's headlines
Student fined for spying on women via their webcams
Photo: DPA

Student from Munich fined €1,000 for spying on 32 different computers, using their webcams to take photographs, or record their keyboard history.

This is how much startup geeks earn in Germany
Photo: DPA

A comprehensive new survey of 143 startup founders shows how much you are likely to be earning at a German startup, from entry level all the way up to sitting on the board.

Man dies after beating for peeing near Freiburg church
The Johannes Church in Freiburg. Photo Jörgens Mi/Wikipedia

A middle-aged man from southern Germany has died after being attacked by a group of men who took umbrage with the fact he was urinating in the vicinity of a church.

The Local List
Seven German celebrities with uncanny doppelgängers
Former Berlin mayor Klaus Wowereit and actor Alec Baldwin. Photo: DPA; Gage Skidmore, Wikimedia Commons

Check out these seven look-a-likes of well known German figures - we admit that some are more tenuous than others...

Israel seeks to buy three new German submarines: report
A Dolphin class submarine. Photo: DPA

Israel is seeking to buy three more advanced submarines from Germany at a combined price of €1.2 billion, an Israeli newspaper reported Friday.

Here’s where people live the longest in Germany
Photo: DPA

Germans down south seem to know the secret to a long life.

More Germans identify as LGBT than in rest of Europe
Photo: DPA

The percentage of the German population which identifies as lesbian, gay, bisexual or transgender is higher than anywhere else in Europe, according to a new study.

'Reichsbürger' pair attack police in Saxony-Anhalt
File photo: DPA.

A "Reichsbürger" and his wife attacked police officers on Thursday, just a day after another Reichsbürger fatally shot an officer in Bavaria.

Five things not to miss at the Frankfurt Book Fair
Photo: DPA

From consulting a book doctor to immersing yourself in an author's world with the help of virtual reality, here are five things not to miss at this week's Frankfurt Book Fair, the world's largest publishing event.

Parents who don't get nursery spot for kid entitled to pay
Photo: DPA

The Federal Court of Justice (BGH) ruled on Thursday that parents whose children don't receive placements in nursery care are entitled to compensation.

Sponsored Article
How to vote absentee from abroad in the US elections
10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
Sponsored Article
How to vote absentee from abroad in the US elections
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd