Germany in “Great Danger” of Recession

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Germany, the eurozone’s largest economy, is in “great danger” of falling into recession, warned the country’s leading economic think-tanks.

A group of leading German economic institutes has revised their heir expectations for economic growth in Germany in the current year as well as in 2013, saying they expected less growth than they had originally anticipated.

In a research paper published today, the four economic institutes – Ifo in Munich, IfW in Kiel, IW in Halle and RWI in Essen – said Europe's biggest economy would only grow only 0.8 percent this year, and 1 percent next year instead of the 2 percent they had been expecting six months ago.

The situation in the employment market will deteriorate further, with the number of unemployed set to rise slightly to 2.9 million in 2013, said the institutes.

 

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The institutes also criticised the European Central Bank, saying its latest anti-crisis measures risked fuelling inflation in the 17 eurozone economies, while jeopardising its “ability to ensure long-term price stability” of the euro.

Last month the ECB unveiled plans to buy up the government debts of struggling eurozone members, but only if those governments first signed up to a rescue package, including strict conditions on cutting their overspending and reforming their economies.

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"The euro crisis is negatively impacting economic activity in Germany," the institutes wrote in their joint twice-yearly report. 

They added:


Should the situation in the eurozone continue to deteriorate, this will also impact the German economy. Over the forecasting period as a whole the downside risks prevail and there is a great danger that Germany will fall into a recession.

Germany has so far been the best performing eurozone economy, thanks in a large part to the competitive price edge afforded to them by a weaker euro.

But the eurozone's woes, coupled with a general slowdown in global growth, were hurting business confidence and investment in Germany, they said.

According to a report by the Financial Times, German Chancellor Angela Merkel has hinted at the possibility of tax cuts to stimulate growth in the German economy.

Merkel reportedly said she was determined to revive Germany’s flagging growth, not least because of the country’s role “to do something for the stimulation of the economy in Europe.”

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