Wednesday, October 24, 2012

German economy may stagnate as crisis drags on powerhouse

The German economy could grind to a standstill by the end of the year amid the combined impact of the debt crisis and the global slowdown, the Bundesbank has warned.


The eurozone’s powerhouse economy, which has managed to defy the downturn and generate growth for the past three quarters, is succumbing to a slowing demand for exports, the Frankfurt-based central bank said.

The Bundesbank’s monthly report stated: “There are increasing signs that a perceptible expansion of economic growth in the third quarter of 2012 will be followed by stagnation or even a slight decrease in gross domestic product in the final quarter of the year.”

The report added: “In the final quarter of 2012, growth is likely to slow substantially as economic weakness in a number of eurozone countries puts the brakes on growth.”

Germany managed to post 0.5pc growth in the first quarter, followed by 0.3pc in the second quarter, largely on the back of strong exports to America and China.

Since the peak of the global financial crisis in early 2009, Germany’s economy has only contracted once, in the fourth quarter of 2011 when GDP fell by 0.1pc. Recent figures have shown that industrial out-put in Germany is still strong.

But the Bundesbank warned that Germany’s export markets were slowing and the demand could not be relied upon. “Surveys are reflecting the gloomy outlook for exports and uncertainty about the prospects for global economic developments,” the bank said in its report.

Economists have warned that the eurozone’s recovery depends on the continuing strength of Germany - both to create growth but also to support the rescue machinery.

Separately, fresh data from Eurostat showed that the eurozone’s combined debt burden surged to record levels last year.

Eurozone debt rose to 87.3pc of GDP in 2001, up from 85.4pc the year before. Greece, Italy and Portugal headed the list of most indebted countries with respective debt levels of 170.6pc of GDP, 120.7pc and 108.1pc.

The limit according to European Union rules is supposed to be 60pc debt-to-GDP. But even Germany’s debt burden is bigger at 80.5pc of GDP.

But the statistics revealed that the eurozone’s combined deficit had narrowed from 6.2pc of GDP in 2010 to 4.1pc in 2011 showing the impact of severe austerity measures imposed by countries across the stricken zone.

Meanwhile, Steffen Seibert, Angela Merkel’s spokesman said he could “categorically deny” reports that Germany would cancel the next EU summit if Britain threatened to veto plans to increase Brussels’ budget.

He told reporters: “We collaborate closely with Britain on all issues, in particular with regard to an agreement on the budget.”

telegraph.co.uk

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