Germany's export-driven economy will grow just 0.3 percent this year and 0.7 percent next as austerity measures linked to the euro zone debt crisis weigh on foreign demand, three European research institutes said on Thursday. "All hopes that Germany could decouple itself from the developments in the euro zone through exports overseas are an illusion," said Gustav Horn of Germany's IMK economic think tank, which is close to the country's trade unions.
"Europe is and remains our central economic partner and the excessive austerity measures in many of our trade partners is hitting us hard." Germany's IMK, France's OFCE and Austria's WIFO said German exports will likely grow less than imports over coming years. Exports fell at their fastest rate in nearly three years in December, although they bounced back in January thanks to demand from outside the eurozone.
Germany's economy has been a mainstay of European growth since the financial crisis of 2008/09, but the institutes' forecasts suggest it could expand more slowly than the euro zone average in 2013. According to a consensus from the latest Reuters poll published in mid-March, which surveyed 55 economists, the euro zone as a whole is expected to expand by 1.0 percent next year.
Germany's economy contracted by 0.2 percent in the last quarter of 2011 but seems to have picked up slightly this year, leading many institutes to hike their growth forecasts. The IMK, which has recently had one of the most negative forecasts, had predicted in December the German economy would contract 0.1 percent this year.
Many economists now expect stable or rising output in the first three months of 2012, avoiding the two successive quarters of contraction that define a recession. They hope that a strong labour market will bolster private consumption to compensate for weaker exports growth. "The German economy will be driven entirely by domestic demand in 2012," said Michael Heise, chief economist at German insurer Allianz, which on Thursday presented its growth forecasts.
Allianz said it saw German economic growth of 1 percent in 2012 and 2 percent in 2013, with domestic demand accounting for 1.7 percent of next year's growth. "Such growth rates are sufficient to continue to support the upswing in the labour market," Heise added. The group of three institutes said they expected unemployment to sink further this year and wages to rise, with real disposable income gaining 0.6 percent in 2012 and 0.8 percent in 2013. Data earlier on Thursday showed Germany's jobless rate dropping to a new post-reunification low of 6.7 percent in March, news that is likely to further embolden trade unions in their demands for wage hikes. The Verdi and IG Metall unions are both asking for 6.5 percent wage rises for some five million workers in total.
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