Germany slashes 2013 growth forecast to 0.4 per cent as it feels impact of euro crisis

BERLIN – The German government on Wednesday more than halved its economic growth forecast for this year to just 0.4 per cent, evidence that the financial crisis that has dragged down some of Europe’s weaker economies is now also weighing on its largest.

In October, the government had predicted growth of 1 per cent for this year. But growth gradually slowed over the course of last year amid trouble elsewhere in the 17-country eurozone, and the economy is believed to have contracted in the fourth quarter.

The government said growth will pick up in 2014, when it is forecast at 1.6 per cent.

The revised forecast came a day after official data showed the economy grew by 0.7 per cent in 2012 — well below the previous year’s figure of 3 per cent. The figure suggests an outright contraction in the fourth quarter, for which the government did not provide a separate estimate.

“We are experiencing a winter half-year that isn’t so easy, but after that the economy will turn upward,” Economy Minister Philipp Roesler, who is also Germany’s vice chancellor, told reporters.

Germany relies heavily on exports to other European countries. As economic troubles grew in recent years in Spain, Italy and even France and Britain, demand for Germany’s high-value industrial goods declined.

Roesler said that businesspeople appear increasingly confident in the eurozone — which is in recession overall — and “companies want to invest; the investment that was missing so far was delayed, not scrapped.”

Recent surveys have shown business confidence rising, though data on industrial orders have shown a mixed picture so far.

The new 2013 German forecast puts the government in line with last month’s projection by the country’s central bank, the Bundesbank. The bank forecast a rebound to 1.9 per cent growth next year if Europe’s debt crisis doesn’t escalate further.

Roesler acknowledged that events in the United States, Germany’s biggest trading partner outside Europe, are important. President Barack Obama and Congress are sparring over raising the government’s borrowing limit, with Republicans calling for spending cuts in return.

Everyone in the U.S. is aware that the problems need to be resolved “so we don’t see any great danger,” Roesler said.