MercoPress. South Atlantic News Agency

Germany expected to grow 1.9% in 2013 because of Euro crisis

DIW chief economist Ferdinand Fichtner (Photo: DPA)

Germany's DIW economic research institute slashed its 2013 forecast for Europe's largest economy by 0.5 percentage points to 1.9% on Wednesday, saying the Euro zone debt crisis would have a bigger impact than it had originally expected.

The German Institute for Economic Research (DIW) said instability in Greece and Spain's weak banks were, along with austerity measures, limiting demand in crisis-stricken countries and taking a toll on German exports.

“The Euro zone crisis is causing the German economy to slow down much more than we originally expected,” the Berlin-based DIW said in a statement.

The institute maintained its 2012 growth forecast of 1%, saying private consumption would drive growth, helped by higher wage agreements and falling inflation, while exports would only make a moderate contribution to growth this year before picking up at the start of 2013.

The German economy experienced strong growth of 3.7% and 3% in 2010 and 2011 respectively, but DIW said growth to 2013 would be considerably weaker as the Euro crisis bites.

”On the one hand (the crisis) has a direct impact via trade flows because a lot of Germany's exports go to European countries which have been hard hit by austerity measures,“ DIW chief economist Ferdinand Fichtner said.

”On the other hand households are feeling increasingly uncertain again due to the crisis. That means they hold back on spending, while companies also hold back on investments, which depresses domestic demand,” he added.

The institute said the weaker growth dynamics would push Germany's unemployment rate up slightly to above 7% by the end of the year but added that it expected this to drop to around 6.5% in 2013 due to stronger growth.

DIW said the construction sector was a bright spot in the economy, especially due to favourable financing conditions.