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IMF: German economy will recover this year

The Local · 4 Jul 2012, 07:46

Published: 04 Jul 2012 07:46 GMT+02:00

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"Several conditions are in place in Germany for a domestic demand-led recovery following the downturn at end-2011," the International Monetary Fund wrote in a new report on Germany.

Germany's economic performance throughout the crisis so far "has been remarkable, despite a difficult environment," the head of the IMF mission to Germany, Subir Lall, said during a telephone conference call.

Germany expanded strongly for most of last year, but growth shuddered to a halt in the final quarter, when it contracted by 0.2 percent.

Nevertheless, the dip was only short-lived and gross domestic product (GDP) rebounded again to expand by 0.5 percent in the first three months of this year.

While the IMF was pencilling in much slower GDP growth of around 0.1 percent in the second quarter, the economy should gather momentum and reach its potential for growth of around 1.25 percent in the second half of the year, Lall said.

Healthy corporate and household balance sheets, higher wages, well anchored inflation expectations, and low borrowing costs would act as a boost by keeping domestic demand strong, the IMF said.

Taking 2012 as a whole, the fund said it was projecting GDP to expand by 1.0 percent, down from 3.1 percent in 2011. Growth would then pick up to 1.4 percent in 2013, it predicted.

The near-term outlook was, however, "clouded by a number of downside risks," the IMF cautioned.

The biggest of these would be a possible further intensification of the eurozone's sovereign debt crisis, "which would spill over into Germany directly through real and financial channels, and indirectly through dampened business and consumer sentiment," it said.

Slower global growth prospects and an abrupt rise in oil prices could also cloud the outlook for activity, it said.

As Europe's biggest economy, Germany could play a "pivotal role in addressing the challenges posed by the crisis" and "reinforce reform momentum in the euro area," the IMF suggested.

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In economic terms, it could rebalance its own economy away from the hitherto strong dependence on exports and seek to strengthen domestically driven growth.

That would "help raise the economy's potential ... while generating positive outward spill-overs" elsewhere in the single currency area, the IMF said.


The Local (news@thelocal.de)

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Your comments about this article

10:06 July 4, 2012 by Anth2305
"IMF: German economy will recover this year..and lead the eurozone back to growth - unless the crisis intensifies further"...

10:25 July 4, 2012 by smart2012
guys, from earlier comments I understood germany was booming. Why do they have to recover????
10:52 July 4, 2012 by michael4096
11Q4 was negative growth, 12Q1 was almost flat
12:25 July 4, 2012 by Floriansamsel

Don't be surprised. It changes daily, you know.

These days, there is nothing as capricious as economics.
13:18 July 4, 2012 by IchBinKönig
Clearly, this is how Socialism will work when done right.
20:24 July 4, 2012 by iLAd
Ya, Ya. Get back onto the treadmill folks, back to business as usual, so we can go on doing our business of running the world. Growth is the carrot for the donkey.
17:42 July 5, 2012 by raandy
Recovery, depends on the stability of the euro, time will tell.

IchBinKönig, homey, you remember what Margret Thatcher said about socialism. "ITs a great form of government until you run out of other peoples money" -:)

Hopefully the present day great socialist Barack Obama, heeds the wit in her statement.
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