BERLIN - Germany's government cut the country's 2012 growth forecast Wednesday due to a faltering global economy and Europe's debt crisis, sparking fears that the region's largest economy could tip into recession.
Following what is believed to have been a contraction in economic activity in the fourth quarter of 2011, Economy Minister Philipp Roesler said the government had reduced Germany's growth forecast for this year from 1 per cent to 0.7 per cent — its second reduction in three months. As recently as October, the prediction was 1.8 per cent.
Germany's economy, the world's fourth-largest, is thought to have contracted by up to 0.3 per cent in last year's fourth quarter compared with the previous three-month period, though final numbers aren't due until next month.
Roesler said he expected growth of 0.1 per cent in the current quarter — meaning that the German economy would hardly grow at all — but would avoid slipping into a technical recession, defined as two consecutive quarters of negative growth.
However, other forecasters have painted a bleaker picture, with many — such as Commerzbank last week — predicting that Germany will fall into a modest recession in the first quarter before returning to growth.
Over 2011 as a whole, Germany grew by 3 per cent — following a growth spurt of 3.7 per cent in 2010 after a deep recession the previous year.
That contrasted with the performance of many of its partners in the eurozone, which have seen their economies barely grow or shrink amid debt troubles and tough austerity measures.
Roesler said "a temporary dent in growth can be expected for the coming months" but predicted that "the economy will gradually liven up over the course of 2012." Growth next year is expected to speed up to 1.6 per cent, he said.
Roesler conceded there were risks regarding the forecasts, primarily from financial market turbulence and the debt crisis in the 17-country eurozone.
"Germany remains on the course of growth — assuming that there is no new sudden crisis on the financial markets, and the uncertainty in the eurozone above all gradually abates," said Roesler, who is also Germany's vice-chancellor.
The German government figures come after the World Bank forecast that the eurozone economy as a whole will contract by 0.3 per cent this year. It sees the United States growing by 2.2 per cent, Japan by 1.9 per cent and China by 8.4 per cent.
Exports have been the bedrock of Germany's growth over recent years, but Roesler said this year's expansion will stem from stronger domestic demand. His ministry forecast that export growth will slow to 2 per cent from 8.2 per cent last year.
It also expects a further improvement in Germany's already-bright labour market picture, with the average unemployment rate this year projected to fall from last year's 7.1 per cent — already a two-decade low — to 6.8 per cent.
Germany has insisted on debt-cutting and austerity as the main medicine to cure Europe's debt woes. It is the prime mover behind a planned new budget-discipline pact.
Last week, Standard & Poor's upheld Germany's AAA credit rating while nine eurozone countries were downgraded — including France, Berlin's co-pilot in the eurozone rescue effort, which lost its top rating.
Chancellor Angela Merkel on Wednesday brushed aside a reporter's question as to whether Germany would now need to do more to show solidarity with other countries.
"I'm still searching for what more exactly we are supposed to do," she said. "When I've found it out, I will answer you."