IfW institute looks German economy darkening

Germany, which has experienced a strong recovery from its deepest post-war recession, is especially sensitive to global economic shocks as it relies heavily on exports for growth.

The German Institute for World Economy (IfW) said in June it expected Europe's largest economy to grow by 1.6 percent next year, but the IfW's Joachim Scheide told Handelsblatt daily he would be "more pessimistic about this today" due to debt problems in the United States and Europe.

Germany has been the star performer in the industrialised world since the end of the financial crisis and its economy grew by 1.5 percent in the first quarter of the year.

Yet many economists expect expansion in the second three months of 2011 to cool to 0.5 percent or less. Forward-looking business and investor sentiment surveys have fallen in the past month.

Scheide said the impact of the "distinct cooling in the world economy" on Germany would start becoming apparent in the coming quarters.

"The risk of a global recession has increased," Scheide told Handelsblatt in an interview to be published on Monday.

German papers were gloomy about the global economy on Sunday and speculated about its possible impact on Germany.

Welt is Sonntag dedicated a section to "Der Crash" (The Crash) and Der Spiegel magazine's front page featured euro and dollar banknotes going up in flames, with the headline "Is the world going bankrupt?".

"If the global economy really crashes, the German economy cannot decouple itself," Holger Schmieding, an analyst at Berenberg Bank told Welt Sonntag. "Then it is well possible that growth in Germany will grind to a halt."

Last week saw $2.5 trillion wiped off global stock markets and the US stripped of its top-tier AAA credit rating by Standard and Poor's.

Asked about the downgrade of the US, Economy Minister Philipp Roesler told Bild am Sonntag: "Clearly the competitiveness of other countries' economies is important for us too."

Copyright Reuters, 2011