Forecast for Germany’s Growth Is Slashed to 1.2%

Shaking confidence in Europe’s ability to stave off recession, Germany’s leading economic institute nearly halved its growth forecast for the country Tuesday and said the region’s biggest economy has yet to hit bottom.

The German economy is expected to limp along at 1.2% this year, the Ifo Institute said in slashing its earlier prediction for 2.1% growth. That’s down sharply from 3% growth in 2000.

Contributing to the decline were high oil and food prices as well as a spillover from the slowdown in the United States and Japan. To shore up the economy, Ifo urged the European Central Bank to cut interest rates by at least a quarter point.

“The German economy hasn’t hit bottom yet,” the institute said in a report. “Ifo expects the ECB to reduce interest rates slightly once again in the latter part of the year.”

The revision in Germany’s growth figures have serious ramifications because the country accounts for nearly a third of the economic output of the 12 European Union countries that share the euro as a currency.

Ifo President Hans-Werner Sinn steered clear of saying Germany was headed into recession, defined by economists to be two consecutive quarterly declines in gross domestic product.

But Sinn warned that growth in Germany’s economy seems to be spiraling downward.

Speaking in Munich, where Ifo released its report, ECB President Wim Duisenberg assured that recession was not looming over the euro-zone economy. He also stuck to the Central Bank’s forecast that the region’s economy as a whole will grow at between 2% and 2.5% this year, outpacing Germany.

Germany’s export-driven economy has been undercut by shriveling demand in the United States, one of Germany’s prime export markets. And domestic inflation has sapped consumers’ willingness to spend.