BERLIN: Germany's BdB banking association slashed its forecasts for German growth this year and next on Wednesday, saying tensions over Ukraine and crises in the Middle East were hitting business sentiment in Europe's largest economy.
The BdB cut its estimate for 2014 growth by 0.3 percentage points to 1.5 percent and slashed its forecast for growth next year to 1.6 percent from 2.0 percent.
The German economy steamed ahead at the start of the year thanks to an unusually mild winter that boosted construction activity but it contracted by 0.2 percent in the second quarter, leading some economists to warn of a risk of recession.
The BdB said, however, that it did not expect Germany to fall into a technical recession, defined as two consecutive quarters of contraction, due to strong domestic conditions such as a robust labour market and low interest rates, which encourage spending.
"Furthermore, the low euro exchange rate and the very good outlook for the U.S. economy should give German exports a boost again," the BdB said in a statement.
The OECD on Monday slashed its growth forecast for 2014 growth in Germany to 1.5 percent from its May estimate of 1.9 percent. While the government predicts the economy will expand by 1.8 percent, Finance Minister Wolfgang Schaeuble has said it may just miss that forecast, according to sources.
The BdB said the risk of deflation in the euro zone was low. It said there were no signs that falling prices were restraining consumer spending, adding that consumer confidence surveys in euro zone countries suggested low inflation was increasing real purchasing power and supporting consumption.
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