IMF Halves 2013 German Growth Forecast To 0.3 Pct

by
Reuters
The International Monetary Fund halved its 2013 forecast for German growth, saying on Monday that Europe's largest economy was suffering from uncertainty in the euro zone but would likely strengthen in the second half of the year.

* Fund could also lower 2014 GDP forecast

* Investment remains weak, rebound seen in H2

* IMF urges structural reforms, no overperformance on consolidation

The International Monetary Fund halved its 2013 forecast for German growth, saying on Monday that Europe's largest economy was suffering from uncertainty in the euro zone but would likely strengthen in the second half of the year.

In its annual report on the German economy, the IMF said Germany should avoid "overperforming" on fiscal consolidation as economic weakness continued. The Fund expected only a weak rebound given continued subdued business investment.

"Amid still elevated euro area uncertainty, we now project GDP in Germany to expand at around 0.3 percent in 2013," the Fund said in the findings of a regular mission. In April, the IMF still forecast economic growth this year of 0.6 percent.

Germany's economy ministry forecasts growth of 0.5 percent this year.

"A gradual pick-up in activity projected towards the end of the year is conditional on a further and tangible reduction in this uncertainty and an ... expected gradual recovery in the rest of the euro zone," the IMF said in a statement.

Mission chief to Germany, Subir Lall, said the IMF may also cut its 2014 forecast from a current 1.5 percent, given lower growth this year, which he said was partly due to a cold winter.

Private consumption saved the German economy from slipping into recession in the first quarter and is expected to be its saving grace this year as investments have fallen and foreign trade slows on gloom in the euro zone and further afield.

The European Commission said last week Germany should allow wage hikes to support domestic demand and permit workforce flexibility and increase competition in the services sector.

The IMF said the soundness of Germany's banking system had improved but credit growth remained weak given uncertain prospects for the euro zone and still unclear regulation.

It urged Germany to lower the tax burden for low wage and secondary earners, increase availability of child care, facilitate immigration of medium-skilled workers and address disincentives to having children.

"Additional reforms to improve the productivity of the services sector remain important," the IMF said.