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German Growth Down: Bad News for EU


The IMF’s growth forecast for Germany has just been cut in half due to troubles created by failing countries in the EU—not that the forecast was all that spectacular to begin with. In April, the IMF had predicted that the German economy would grow by 0.6 percent this year, but that already meager number is now down to 0.3 percent. This continues the trend of slow growth for Germany; the economy advanced by only a tenth of a percent in the last quarter of 2012. While the IMF does see some signs that the situation will improve in the near future, it warns that good news for Germany will depend on better news from the rest of the EU, which is something we haven’t seen for quite some time. The BBC quoted the report:

“Should the alleviation of uncertainty and an expected gradual recovery in the rest of the euro area fail to materialise, [German] growth can be expected to remain below its potential for longer.” […]

‘A gradual pick-up in activity projected towards the end of the year is conditional on a further and tangible reduction in this uncertainty and an… expected gradual recovery in the rest of the eurozone,’ it said.”

Germany and the rest of the EU now find themselves caught in a vicious circle. Germany needs a strong EU to get out of the doldrums, and the EU needs a prosperous Germany to backstop the many proposed bailout plans needed to keep the southern economies afloat. Given this dynamic, any report of faltering growth in Germany is bad news for the rest of Europe, as it means Germany will have less and be even less disposed to send resources abroad.

This could also be problematic for Merkel, who is feeling pressure from anti-Euro, anti-bailout groups on the right ahead of September’s elections. Germans are already reluctant to bailout “profligate” southern Europe; if the economy continues to stagnate, that reluctance will grow and even more voters will flock to the opposition.

It’s still not clear what exactly this means for Europe, but it’s definitely nothing good.

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