EU Halves Germany’s 2013 Growth Forecast as Crisis Hurts Exports

The European Commission halved its 2013 growth forecast for Germany, Europe’s largest economy, citing the sovereign debt crisis and weaker export demand.

The economy will grow 0.8 percent this year and next and expand 2 percent in 2014, the European Union’s executive arm in Brussels said in its autumn forecast today. In May, it predicted growth of 0.7 percent in 2012 and 1.7 percent in 2013.

There are increasing signs that the debt crisis is beginning to take a toll on the Germany. Industrial production declined for a second month in September, factory orders slumped the most in a year, and business confidence is at the lowest level since 2010. Still, the economy will continue to outperform most of its euro-area counterparts as they struggle to rein in deficits, the Commission said.

“The fundamentals of the German economy remain intact” and “economic growth is expected to regain momentum in the course of next year,” it said.

German Chancellor Angela Merkel’s economic advisers also predict economic growth of 0.8 percent this year and next, according to a report released in Berlin today.

“The second half of 2012 is characterized by widespread recessionary trends in the euro zone that impact on the German economy through foreign trade and confidence” and damp the economy’s expansion through declining investment, the advisers’ report said.

Euro-Area Recession

The Commission predicts the euro-area economy, Germany’s biggest trading partner, will shrink 0.4 percent this year before growing 0.1 percent in 2013. It forecasts annual economic contractions next year in six of the 17 nations sharing the euro.

German export growth “is expected to halve in 2012, while picking up pace again in the subsequent years along with reviving economic activity in trading partner countries both within and outside the euro area,” the Commission said. “Moreover, domestic demand should continue to be underpinned by both consumption and housing investment, which are in turn supported by robust labor market conditions and low interest rates.”

The Commission predicts Germany will balance its general government budget in 2014 after running deficits of 0.2 percent of gross domestic product this year and next. The structural general government budget surplus will rise to 0.3 percent in 2013 and 2014 from 0.2 percent this year.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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