German government to halve its estimate for economic growth this year

Jan. 15, 2013

AFP - The German government will on Wednesday halve its estimate for economic growth this year, business daily Handelsblatt reported, as Europe's debt crisis takes its toll on its top economy.

The government will forecast output growth of "around 0.5 percent" for 2013, when it publishes its annual economic report on Wednesday, Handelsblatt said.

Previously Berlin's target had been for 1.0-percent growth in 2013.

Germany has proved highly resistant to the three-year debt crisis that has tipped many of its European partners into deep recessions.

But as weaker economies both globally and in Europe have reduced demand for Germany's precious exports, even the European powerhouse has begun to totter.

The German economy, Europe's biggest, grew by just 0.7 percent in 2012, compared with 3.0 percent in 2011, the federal statistics office Destatis calculated Tuesday.

"Overall, the German economy proved itself to be very robust," Destatis president Roderich Egeler told a news conference.

"Despite the European economic crisis, gross domestic product (GDP) expanded by 0.7 percent, driven particularly by robust foreign trade as well as domestic consumption," Egeler said.

For the first time in five years, the overall state budget -- which covers both the German government, the regional and municipal authorities, as well as the social welfare administration -- showed a surplus of 2.2 billion euros ($2.9 billion), equivalent to 0.1 percent of GDP, Egeler added.

In 2011, the overall state budget had shown a deficit ratio of 0.8 percent.

Inflation edged higher to 2.1 percent in December from 1.9 percent in November, the data showed, driven by higher food and energy prices.

The figures also showed that inflation slowed throughout the year in 2012, rising by an average of 2.0 percent compared to the previous year, when it increased by 2.3 percent.

The European Central Bank aims to keep inflation in the eurozone "close to, but below two percent."

And using the Harmonised Index of Consumer Prices (HICP), the ECB's yardstick, the annual average for the whole of 2012 stood at 2.1 percent, Destatis said, slightly above the central bank's target.

Inflation in December was pushed up mainly by a 4.8-percent rise in the price of food, the highest such increase since September 2008, the statistics office said.

Energy prices also rose strongly, by 3.5 percent, but the upwards trend slowed, Destatis said. "Towards the end of the year, energy prices thus had a much smaller effect on the inflation rate than in the preceding months."

Nevertheless, most analysts see this as a temporary blip and business and consumer confidence indicators point to a revival in the second half of the year, a view reportedly shared in Berlin.

"The government expects average economic growth of around 0.5 percent this year," the annual report will say according to Handelsblatt.

"The forecast is supported by the idea that after a weak start, the German economy will again grow quicker in the second half of the year," Handelsblatt quoted the report as saying.