German research institutes halve growth prediction

PanARMENIAN.Net - Germany's leading economic research institutes have halved their prediction for the country's growth next year, saying the financial woes of other European nations continue to weigh heavily on the bloc's largest economy, according to The Associated Press.

In a joint report for the Economy Ministry released Thursday, Oct 11, the institutes said they now expect gross domestic to increase by only 1 percent in 2013. Fears of more trouble and turmoil from indebted countries are weighing on business spending on new equipment and production facilities, a key component of growth.

They warned that even that modest amount of growth they are predicting depends on political leaders now taking more decisive action to further stabilize the 17-country eurozone. If the debt crisis should worsen and borrowing costs for troubled countries spike, they said, "there is a great danger Germany will fall into recession."

"Over the course of the year ahead economic activity in Germany is expected to improve, since the situation in the eurozone should gradually ease and the rest of the world economy should gain greater momentum," they said in their twice-yearly report.

Yet they warned that the ECB's chances of lowering borrowing costs for governments and companies in the crisis countries will largely depend on whether politicians' "economic policy can restore the confidence of financial investors, companies and households."

Budget cuts by governments trying to reduce debt would dampen growth, they said, but help reduce uncertainty that is plaguing the eurozone.

So far, they cautioned, there are "no signs of a long-term economic policy solution to the crisis" and "risks to stability remain high."