4th Jul 2022

IMF halves growth forecast for Germany

  • 'Uncertainty' will dampen Germany's growth this year, says the IMF (Photo: Valentina Pop)

The International Monetary Fund on Monday (3 June) halved its growth forecast for Germany to 0.3 percent this year "amid still elevated euro area uncertainty" and asked the economic powerhouse not to "overperform" on fiscal consolidation.

"Ongoing recession" in the eurozone and declining German exports to other euro countries mean that the German economy is now expected to grown only by 0.3 percent this year compared to an April forecast of 0.6 percent, the IMF said in its yearly review on the German economy.

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In Berlin, the German economy ministry still forecasts a growth of 0.5 percent this year.

The longer it takes for the eurozone economy to recover, the more it will affect the German economy, as its industry will find it difficult to export and its labour market will have less jobs for all the available work force.

"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," the IMF warned.

The Washington-based lending institution said Germany has done all the right things in cutting its budget deficit, but should "avoid overperforming" on fiscal consolidation as it could lead to recession given the weak economic growth.

Overall, however, Germany remains an "anchor of stability" for the eurozone, as investors flock to its bonds and its "strong balance sheets provide a buffer against external shocks for the region."

The IMF also praised Germany's "pivotal role" in shaping policies and deepening eurozone integration.

"Germany can also play an important role in clearly articulating the longer-term shared vision for closer economic and financial integration among EMU countries, which would provide a crucial anchor to the expectations of households, firms, and the financial system," the IMF said.

Last week, Germany Chancellor Angela Merkel and French President Francois Hollande called for a eurozone president as part of plans for a deeper euro-integration to be discussed at a summit later this month.

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