German ‘wise men’ pessimistic on quarter

FRANKFURT - Agence France-Presse

The German economy, Europe’s biggest, cannot escape the fallout from the eurozone crisis and growth will be hit in the fourth quarter, a panel of top economic experts said yesterday.

But growth should start picking up again during the course of next year, the so-called “Five Wise Men”, who advise the government on economic matters, wrote in their regular twice-annual report.

Unlike most of its European neighbors, Germany has been spared the worst of the long-running debt crisis thanks to deep and painful structural reforms implemented a number of years ago.

It clocked up growth of as much as 4.2 percent in 2010 and 3 percent in 2011.

But growth has been slowing this year. After expanding by 0.5 percent in the first quarter, the economy grew by 0.3 percent in the second quarter and growth looks set to slow again in the third quarter.

“Economic momentum in Germany is likely to reach bottom in the fourth quarter,” the Five Wise Men wrote, confirming their previous March forecast for overall gross domestic product (GDP) growth of 0.8 percent for the whole of 2012.

“The growth rate will gradually pick up again during the course of 2013. And growth will reach an annual average of 0.8 percent again next year,” the experts calculated.

That makes the Five Wise Men, whose ranks include one woman, more pessimistic than most about next year’s prospects.

While both the German government and the country’s leading economic think-tanks agree on projected growth of 0.8 percent this year, they are pencilling in slightly stronger growth of 1.0 percent for next year. “The economic indicators up until October suggest that economic momentum will slow until the end of the year,” the panel said.

Recession tendency

Domestic industrial demand is pointing downwards and recessionary tendencies elsewhere in the euro area were hitting exports and investment, which were in turn putting the brakes on growth.

Turning to inflation, the experts forecast an average annual increase in consumer prices of 2.0 percent both this year and next year, which is more or less in line with the European Central Bank’s definition of price stability.

The labor market will continue to hold up well, with the jobless rate expected to remain low at 6.8 percent this year and 6.9 percent next year, the panel predicted.

The outlook for Germany’s public finances was also favorable, with a small surplus equivalent to 0.1 percent of GDP slated for this year, followed by a public deficit of 0.1 percent next year.

Under eurozone rules, member states are not allowed to run up deficit ratios in excess of 3 percent.