Euro crisis still biggest threat
Germany’s leading economic institutes revised their 2012 growth forecasts upwards slightly last Thursday, but warned that the debt crisis still haunting the eurozone remained the biggest threat to growth in Europe’s largest economy.
The eight institutes, whose forecasts form the basis for the German government’s own growth estimates, raised their growth forecast to 0.9 per cent this year, rising to 2.0 in 2013.
In October, they had forecast 0.8 per cent growth in 2012.
“After a lull that lasted several months, the German economy picked up again in spring 2012,” the institutes said in their twice-yearly report.
The institutes said the global economic environment had brightened slightly since last winter, when the German economy contracted by 0.2 percent in the final quarter of 2011 on sagging exports and weak private consumption.
Many economists now think this was a blip, and that Germany’s export driven economy, which bounced back quickly from the 2008/09 financial crisis, will avoid a recession, generally defined as two consecutive quarters of contraction.
The institutes forecast a further decrease in unemployment, following a two-decade low last month, to 6.2 per cent in 2013 from 6.6 per cent in 2012, already down from 7.1 per cent in 2011.
Consumer confidence remained close to a one-year high heading into April, as Germany’s solid labour market has propped up spending, and surveys point to private consumption as a bright spot in the economy that can weather any bad news.
German analyst and investor sentiment rose unexpectedly in April, boosting hopes that Europe’s powerhouse is recovering from a weak spell. The new report said German firms were more price-competitive now than at any other time in the last 30 years, primarily due to the weakness of the euro.
But risks remain to growth from the eurozone’s debt troubles, as the impact of the ECB’s massive liquidity injections wanes and markets refocus on their weak banks and difficulties pushing through reforms to spur economic growth.