German Government Cuts 2013 Growth Forecast on Euro Woes

German Chancellor Angela Merkel’s government cut its growth forecast for Europe’s biggest economy as austerity policies in cash-strapped euro-region countries and cooling world trade damp exports.

German gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012, the Economy Ministry said in its annual report today. That compares with a previous forecast for 1 percent expansion. Growth will accelerate as the year progresses and average 1.6 percent in 2014, it said.

“We assume that the phase of weakness this winter will be overcome in the course of the year and that our economy gains traction again,” Economy Minister Philipp Roesler told reporters in Berlin.

The euro area, Germany’s largest export market, fell into recession last year as countries from Greece to Spain cut spending to rein in deficits and weaker growth in the U.S. and China curbed global trade. Slowing growth may make it harder for the German government to adhere to a constitutional debt rule.

Merkel’s government borrowed 22.5 billion euros ($30 billion) last year, less than the 28.1 billion euros estimated in the latest supplementary budget. Adjusted for swings in the economy and one-time effects, the federal shortfall narrowed to 0.32 percent of GDP last year, beating a target of 0.35 percent set for 2016. The government expects the so-called structural deficit to widen to 0.34 percent of GDP this year.

Stock Drop

German stocks fell for a second day after the government cut its forecast and as Luxembourg Prime Minister Jean-Claude Juncker said the strength of the euro poses a threat to the region’s economy. The DAX Index slid more than 0.3 percent to 7,648.93 at 1:05 p.m. in Frankfurt. The euro was little changed at $1.3309.

Today’s forecast follows a report yesterday from the Federal Statistics Office showing economic growth slowed last year to less than a quarter of its 3 percent pace in 2011. It estimated that gross domestic product may have fallen as much as 0.5 percent in the fourth quarter from the previous three months, suggesting Germany is on the brink of a recession.

The Bundesbank predicts Germany will avoid that slump, saying on Dec. 7 that the economy should stabilize in the current quarter after shrinking in the final three months of 2012. Still, the Frankfurt-based central bank lowered its outlook and forecast growth of just 0.4 percent this year before an acceleration to 1.9 percent in 2014.

Factory Orders

German factory orders, adjusted for seasonal swings and inflation, dropped 1.8 percent in November amid weak demand from outside the euro area, the Economy Ministry said Jan. 8. Exports plunged 3.4 percent that month, marking the steepest decline in more than a year, the Federal Statistics Office in Wiesbaden said the same day.

Export growth will slow to 2.8 percent this year from 4.1 percent in 2012 while the expansion of imports will speed to 3.5 percent from 2.3 percent, the ministry said. Foreign trade will subtract 0.1 percentage point from growth in 2013 after contributing 1.1 percentage point last year.

Revenue figures published by the Finance Ministry reflect the slowdown in the economy, which may have contracted as much as 0.5 percent in the final quarter of last year. Tax intake rose 0.5 percent from a year earlier in November, compared with 11-month revenue that was 5 percent higher than in the same period the previous year.

Domestic Demand

The economy’s expansion will be driven mainly by domestic demand this year even while the unemployment rate is expected to rise to 7 percent from 6.8 percent in 2012, the ministry said. Gross wage growth will hold at 2.6 percent this year, it said.

Metro AG, Germany’s biggest retailer, today reported little changed fourth-quarter revenue as increased sales at the Media-Saturn consumer-electronics business in Germany offset weakness in western Europe. Sales climbed 0.5 percent to 19.4 billion euros, the Dusseldorf-based company said.

Elsewhere in Europe today, data showed the euro region inflation rate stayed unchanged at 2.2 percent in December, matching a prior estimate released on Jan. 4. Prices rose 0.4 percent from November.

Inflation data will also be released in the U.S., where a report may show consumer prices were unchanged in December from the previous month. Industrial production increased 0.3 percent in December after a 1.1 percent gain the previous month, the best back-to-back readings in a year, according to a Bloomberg News survey.

In Asia, Japan’s machinery orders rose more than expected in November, suggesting that companies are optimistic about the economic outlook. China’s foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor.

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