Mon | Oct 22, 2018

German government slashes growth forecast

Published:Wednesday | October 15, 2014 | 12:00 AM

Europe got more bad news about its dominant economy Tuesday when the German government slashed its growth estimates for this year to 1.2 per cent from 1.8 per cent.

The cut follows a run of disappointing data on exports, industrial production and factory orders, the heart of Germany's manufacturing and export-dominated economy.

The drip, drip of bad news has raised fears that Germany could slip back into recession or stagnate, dragging down the 18-country Eurozone, which itself is struggling to stoke a recovery.

The economy ministry also cut the forecast for next year, to 1.3 per cent from two per cent.

Economy and Energy Minister Sigmar Gabriel blamed external causes. He said geopolitical conflicts and mediocre global growth were holding Germany back, while domestic demand and employment remain strong. Germany is a major exporter, selling autos and industrial machinery into the growing economies in China and the United States.

"The German economy finds itself in difficult external waters," Gabriel said in a statement.

The conflict between Russia and Ukraine has rattled businesses, leading them to hesitate in making investment in expanding production. The spread of the radical Islamic State militia in Syria and Iraq is another unsettling factor, while headlines about Ebola probably don't help, either.

Germany's troubles are adding to worries about the overall fate of the European economy. The Eurozone economy did not grow at all in the second quarter compared with the quarter before, dragged down by a 0.2 per cent contraction in Germany.