German downturn

The leading German economics institutes have painted a somber picture of the country's economic outlook in an assessment presented in Berlin on Thursday.

The experts predicted a sharp economic downturn for 2012. They said gross domestic product (GDP) would sink from an expected 2.9 percent this year to just 0.8 percent in 2012.

Their original growth projection for 2012 was 2 percent. Germany saw unexpectedly good GDP growth at the start of the year, which has since stalled.

On a more optimistic note, the report also predicted a slight reduction in the unemployment rate from 7 percent this year to 6.7 percent in 2012.

Debt crisis influence

The experts said the eurozone debt crisis was having a negative effect on the German economy, adding that banks and insurance companies with Greek government bonds would have to reckon with losses.

But the report went on to say that "a contagion of the same dimensions as that after the Lehman Brothers' bankruptcy is not very likely."

German Economy Minister Philipp Rösler said despite the report's predictions, Germany remained a beacon for stability and growth in Europe.

"Bear in mind that in addition to being highly competitive, the German economy still has a positive effect on the labor market and has solid public finances," Rösler said as he arrived for an official visit to Libya.

He added that economists were right to demand clearer rules governing economic and fiscal policy.

Potential recession

The report warned that the European financial system could again become unstable if the sovereign debt crisis escalated. If this were to occur, it said, the German economy would slow down more than expected, leading to a recession.

The eurozone is seeing a massive sovereign debt crisis, with Greece, Ireland, Spain and Portugal all running high government deficits.

The report added, however, that if the financial crisis gradually lost its bite, economic growth in Germany could speed up once more, starting in the spring.

The report, released biannually, is a collaborative effort by the Rhenish-Westphalian Institute for Economic Research in Essen, the Institute for Economic Research in Munich, the Kiel Institute for the World Economy and the Halle Institute for Economic Research.

Although their forecast is not official, it is generally used by the Economics Ministry as a basis for its projections and financial planning.

Author: Timothy Jones, Darren Mara (dapd, AFP, dpa)
Editor: Martin Kuebler