Euro zone’s ‘powerhouse’ expected to slow

| October 13, 2011

Growth in the Germany economy, which is the euro zone’s largest, is expected to slow sharply next year as the ongoing debt crisis persists.

In a closely monitored twice-yearly report, Germany’s leading economic institutes have slashed their growth forecasts for the economy from 2% next year to 0.8%, citing the debt problems in the euro zone.

The report will raise questions about the recovery in the euro zone as slow growth in Germany makes it more difficult for the rest of the region to avoid a double dip recession.

Germany emerged from recession in the second quarter of 2009 – much sooner than many of its counterparts throughout the world.

Last year, the economy posted growth of 3.6% – the strongest pace since reunification in 1990, according to the Federal Statistical Office.

However, a recent slew of weak economic data has forced many to re-evaluate their assessment of the economy.

The Washington-based International Monetary Fund recently lowered its growth forecasts for both Germany and the euro zone this year and next, as a result of the debt crisis.

Meanwhile, in a statement, the institutes said: “The debt crisis in Europe is threatening to become a banking crisis, which is increasingly weighing on the German economy too.”

The institutes comprise six German think-tanks: IWH, Kiel Economics, Ifo, IfW, RWI and ZEW as well as Zurich’s KOF and Vienna’s IHS.

However, they believe that Germany will avoid a recession.

It added that the country’s unemployment rate will continue to fall from 7% this year to 6.7% in 2012.

Last month, official data revealed unemployment in Germany dropped to its lowest level in more than 20 years in September.

The country’s unemployment rate fell from August’s rate of 7% to 6.6% and its job market has performed much better than in many other countries and many believe it is the result of the “Kurzarbeit” scheme, introduced by the German Government, designed to prevent mass redundancies.

Last year, Germany’s unemployment rate plunged to 7.7% from 8.2% in 2009 as a result of the Government initiative.

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