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Germany at risk of recession

 A number of financial institutions in Germany have cut the countries growth forecasts and are warning of a slide into recession.

The group believes that the Eurozone’s biggest economy will only post growth of 1% for next year instead of the 2% they had been predicting earlier in the year.They stress that the figure would become a lot lower if the Euro crisis escalates further. The European Central Bank (ECB) comes under fire from the group as they believe its policy of purchasing debt risked fuelling inflation across the region. For this year they are predicting that Germany will only grow by 0.8% instead of 0.9% thought previously.

The ECB’s plans to buy up the debt of struggling nations come with strict conditions for those requesting aid to implement harsh austerity measures to limit overspending and reforms of their economies. The institutions said; “This process could be triggered by the ECB effectively providing monetary financing for states,” according to the semi-annual report by the four think tanks, Ifo in Munich, IFW in Kiel, IWH in Halle and RWI in Essen.

“Europe’s citizens and players in the markets may lose trust in the ECB’s ability to ensure long-term price stability as a result. In the longer term there is a great danger that the ECB will continue to purchase bonds and provide excessive monetary policy stimulation even if states deviate from the adjustment programmes, which could drive up prices and lead to an increase in inflation expectations.”

The group’s pessimistic appraisal of the German economy flies in the face of the latest data which shows that German exports are continuing to hold up despite the slowdown in the global economy.

“This assessment of the German economy is based on the assumption that the situation in the Eurozone gradually stabilises over the forecasting period and that confidence, especially on the part of investors, is restored,” the report warned.

“Should the situation in the Eurozone continue to deteriorate, this will also impact the German economy. Over the forecasting period as a whole the downside risks prevail and there is a great danger that Germany will fall into a recession.”

They are predicting that unemployment in the country would rise from the current 20 year low level of 6.2% up to 6.8%. As the EU’s biggest economy Germany has been faring better than the rest of Europe economically, the group warns however that should the situation get to the point where Germany falls into recession the consequences for the rest of the region would be catastrophic and sapping business confidence across the world.

The groups report joins an ever growing list of negative predictions for not just Europe but for the world. On Thursday IMF cheif Christine Lagarde said : “Whether you turn to Europe, to the United States of America, to other places as well, there is a level of uncertainty that is hampering decision makers from investing, from creating jobs,” she said during a press conference in Tokyo.

Let’s just hope the doom merchants are wrong.

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