German economy could contract in 4Q

THE German economy, Europe's biggest, will see a sharp slowdown in growth or may even contract at the end of the year as the eurozone crisis bites, the country's central bank has warned.

Germany has so far held up to Europe's long-running sovereign debt crisis much better than its eurozone neighbours.

While many eurozone countries slipped into recession, Germany notched up growth of 0.5 per cent in the first quarter and 0.3 per cent in the second quarter.

However, "there are increasing signs that, following a noticeable expansion in output in the third quarter, we might see stagnation or even a slight contraction in gross domestic product (GDP) in the fourth quarter," the Bundesbank wrote in its latest monthly report, released on Monday.

Earlier, the finance ministry in a separate report had similarly warned of a sharp slowdown in growth at the end of this year.

"In the third quarter, too, the economy is likely to have expanded again," the ministry said, without providing any concrete forecast.

Industrial output grew in the months of July and August, providing unexpectedly strong impulses for overall growth.

"Nevertheless, in the final quarter of 2012, growth is likely to slow substantially as economic weakness in a number of eurozone countries puts the brakes on growth," the ministry predicted.

Such an interpretation was backed up by the drop in investor sentiment, as seen in the fifth consecutive monthly decrease in the ZEW's monthly confidence index, the ministry said.

Last week, the German government fractionally upgraded its growth forecast for the current year to 0.8 per cent, but slashed its prognosis for next year to just one per cent.

Germany's economic performance in the first six months of this year had turned out better than thought, said Economy Minister Philipp Roesler when presenting the forecasts.

"But with the European sovereign debt crisis and the economic weakening in developing countries in Asia and Latin America, Germany is in stormy economic waters," he said.

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