IMF halves German 2013 growth forecast

The International Monetary Fund cut in half Monday its forecast for German growth this year, but predicted that Europe's biggest economy will experience a recovery in the second half of 2013. "Amid still elevated euro area uncertainty, we now project GDP (gross domestic product) in Germany to expand at around 0.3 percent in 2013," compared with a previous forecast of 0.6 percent, the IMF said in a statement. Growth this year "is expected to be weak," the IMF said. Nevertheless, "amid strong domestic fundamentals, a recovery in activity in Germany is expected in the second half of 2013." And the head of the IMF's German mission told a news briefing in Berlin that growth would be "marginally lower than originally assumed." Instead of the earlier forecast for growth of 1.5 percent in 2014, the growth would more likely come out at "around 1.3 percent," said Subir Lall. He said the organisation would present a more definite forecast for 2014 in its quarterly world outlook in July and in a complete report on Germany at the beginning of August. The IMF diagnosed that "a more robust rebound is being held back by continued weakness in business investment." While "consumption has been robust" and "domestic fundamentals continue to remain strong and past reforms have paid off as seen in low unemployment ... business investment has been declining since late 2011," the organisation complained. Uncertainty about the prospects for the euro area in face of the ongoing recession had hit both exports and business investment, the IMF said. A gradual pick-up in activity projected towards the end of the year was "conditional on a further and tangible reduction in this uncertainty and a materialisation of the expected gradual recovery in the rest of the euro area," it said. Germany, thanks to deep and painful structural reforms pushed through a number of years ago, has fared much better than its eurozone partners in the long and debilitating sovereign debt crisis. And it has managed to avoid the recession into which the euro area as a whole has been plunged, even if growth slowed last year and the economy actually contracted in the final quarter of 2012. Germany only just scraped past a recession at the start of this year, clocking up growth of a meagre 0.1 percent, largely because of the unusually harsh and long winter. The disappointing first-quarter performance was the reason for the IMF's decision to cut its 2013 forecast, said mission chief Lall. The government is currently more optimistic than the IMF and is pencilling in growth of 0.5 percent for the whole of 2013. The IMF warned of risks "tilted to the downside". "Should the alleviation of uncertainty and an expected gradual recovery in the rest of the euro area fail to materialise, growth can be expected to remain below its potential for longer," it said. "Another important source of risk is a rise in financial stress in the region, which could interact with already weak demand and uncertainty, to amplify the impact on the German economy through both trade and financial channels. "These risks could be further compounded by weaker global growth prospects." The IMF said the German government's current fiscal stance was "appropriate" and Berlin should be careful not to "overperform on consolidation ... given the weak growth environment and significant risks to the outlook." Germany's "strong fundamentals provide an anchor of stability to the region. Germany's safe haven status and strong balance sheets provide a buffer against external shocks for the region," the IMF said. "Germany also plays a pivotal role in the development of policies and the evolving architecture of monetary union," it said.