Germany’s economy is on the edge of recession as exports to China and Russia sag and Chancellor Angela Merkel’s domestic policies hold back growth, four economic institutes said in a report.
Europe’s biggest economy probably posted zero growth in the third quarter and will expand by 0.1 percent in the fourth after shrinking 0.2 percent in the second, according to the fall outlook presented Thursday by the institutes advising the government. The group cut its 2014 growth forecast to 1.3 percent from 1.9 percent in April and trimmed next year’s to 1.2 percent from 2.0 percent.
“This year, we have some weakening,” Finance Minister Wolfgang Schaeuble said in Washington Thursday, citing global crises such as the Ukraine conflict and the effect of sanctions against Russia. “We don’t have a recession in Germany.”
The twice-yearly forecast adds to evidence that Merkel’s focus on balancing the budget and promoting exports is failing to sustain projected growth as key foreign markets for German goods falter. Merkel is partly to blame by boosting burdens on business with measures such as the national minimum wage rolled out this year, the forecasters said.
German export data Thursday showed the biggest decline since January 2009, the latest sign that the economy is struggling to rebound as the European Central Bank seeks to revive inflation and growth in the euro area.
Merkel Response
Merkel said her government is looking at ways to spur investment in Germany in areas such as digital technology and renewable energy, and to reduce bureaucracy. Thursday’s report “didn’t surprise us because the overall economic forecasts have dimmed somewhat,” Merkel told reporters in Berlin.
Conflict in Ukraine and weaker demand for imports in China contributed to a “markedly cooled” outlook, said the joint report by the DIW, IWH, IfO and RWI institutes. “Headwinds damping the economic outlook are also coming from economic policy” pursued by Merkel, the group said.
Merkel has held up Germany as Europe’s growth engine and rebuffed international criticism of its export-led economy while pressing euro-area allies such as France to enforce fiscal discipline. The chancellor won a third term last year on a platform that included a pledge to end public borrowing.
As the economy struggles, members of her Christian Democratic Union are pressing her for ways to stimulate growth.
Germany needs to “strengthen competitiveness and improve conditions for business,” Joachim Pfeiffer, the CDU’s spokesman on economic affairs in parliament, said in an e-mailed statement Thursday. “The motto should be to lower burdens, not increase them.”