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Think-tanks slash German growth forecasts as exports slump

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German Chancellor Angela Merkel

German Chancellor Angela Merkel

The state of Germany's economy

The state of Germany's economy

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German Chancellor Angela Merkel

A number of economic think-tanks in Germany have slashed growth projections for the country and warned more must be done to boost growth and investments in the Eurozone's largest economy.

It comes as the country suffered another dose of bleak economic news as exports slumped more than 5pc in August, the largest amount since the height of the crisis in 2009.

It is the latest worrying development signalling the country's economy is faltering and heightening fears that it could have slipped into recession.

The country's economy unexpectedly shrank between April and June by 0.2pc compared with the previous quarter, and yesterday's disappointing data suggested either little or no growth in the third quarter, or possibly another contraction.

Exports fell 5.8pc in August compared with July, the biggest fall in about five-and-a-half years.

The Federal Statistics Office said late-falling school holidays in some German states had contributed to the fall in both exports and imports, but the figures still painted a gloomy picture for Germany following steep drops in industrial orders and output data earlier in the week.

Analysts didn't pull any punches. "The economy seems to need a small miracle in September to avoid a recession in the third quarter," Carsten Brzeski, an economist at ING, told Reuters.

Timo Del Carpio, of RBC, said: "Overall, while we expect something of a rebound in the final month of the quarter, the suite of indicators for Germany are far from suggestive of a convincing rebound in the third quarter."

On top of this, the country's leading economic bodies cut their growth forecasts for the domestic economy this year and next year.

In a joint report, the institutes said the Eurozone's biggest economy would grow only 1.3pc this year and 1.2pc next year.

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This is down from their April forecasts of 1.9pc and 2pc respectively.

The institutes also urged the government to increase growth stimulus through capital spending and to encourage private investment, stressing there was sufficient "financial room for manoeuvre."

Chancellor Angela Merkel's government has faced pressure from within the country as well as from ailing European states such as France and Italy to ratchet up public investment in infrastructure instead of prioritising deficit reduction. So far, however, Merkel's government has made clear that its top priority is to deliver on its promise of a federal budget that is in the black, or fully balanced, in 2015.

The German economy had a strong start to the year but shrank by 0.2pc between April and June. Yesterday's data adds to the evidence that the economy may have barely grown over the summer, with some economists predicting another contraction, pushing the country into recession.


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