Global Economies

German Economy, Profiting from Mild Climate, Services, Seen Growing by 1.9% This Year, IMF Says

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Germany's economy will grow by 1.9 percent this year, the International Monetary Fund said on Thursday in revising upward its growth forecast for Europe's largest economy from 1.7 percent.
  • Why it matters

    Why it matters

    The IMF’s updated forecasts show that Europe is not out of the woods yet. Economic growth is stabilizing, but the overall growth figures mask differences between countries.

  • Facts

    Facts

    • The IMF sees Germany’s economy growing 1.9 percent this year. That’s up 0.2 percentage points from the IMF’s last growth forecast in April.
    • Global growth is seen slowing this year to 3.4 percent, down from the IMF’s April forecast of 3.7 percent.
    • The United States, Russia and China have all performed worse than expected this year, the IMF said.
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    Audio

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Germany’s robust economy appears to be unbroken, according the International Monetary Fund, which on Thursday said it expected Europe’s largest economy to grow by 1.9 percent this year, up from a 1.7 percent estimate just three months ago.

The fund, which is based in Washington and releases quarterly forecasts on national and global economies, held steady its forecast for European economic growth at 1.1 percent. The IMF said the unchanged value for Europe masked an increasing divergence among countries such as France and Italy, where growth appears to be slowing, or Spain, which like Germany is growing faster than expected.

 

“To strengthen the recovery, the euro area clearly still needs strong action on both the demand and the supply side.”

Olivier Blanchard, IMF chief economist

IMF chief economist Olivier Blanchard said at a press conference in Washington on Thursday that the unchanged value for the euro zone masked an increasing divergence among countries such as France and Italy, where growth appears to be slowing, or Spain, which like Germany is growing faster than expected.

Germany’s economy has led the way in Europe so far this year, helped by a mild winter that boosted the country’s construction sector, and is showing few signs of letting up. The services sector is growing at its fastest pace in more than three years, according to a closely-watched monthly survey of purchasing managers released Thursday by the survey firm Markit.

 

car manufacturing
Source: DPA. Worker at Volkswagen's production plant in Germany.

 

France’s economy by contrast is slowing; its growth was revised down by the fund to only 0.7 percent from 1.0 percent three months earlier. Among those euro zone nations at the heart of a debt crisis that has dogged the continent for the last five years, Spain is doing better than expected. It is projected to grow 1.2 percent this year, but Italy is slipping further behind, forecast to eke out growth of just 0.3 per cent, the IMF said.

The 18-nation euro zone is seen recovering further next year, projected by the IMF to grow 1.5 percent. That is still too low for a continent that is desperate for new jobs to curb high unemployment, but is decent for a region only just emerging from a damaging debt crisis. The euro zone’s economy shrunk the last two years, by 0.4 percent in 2013 and 0.7 percent in 2012.

“To strengthen the recovery, the euro area clearly still needs strong action on both the demand and the supply side,” Mr. Blanchard said, urging the European Central Bank to keep a close eye on weak inflation and prodding governments to push harder for structural reforms that could boost growth.

The pessimism was the result of major downward revisions to growth for the United States, which suffered a disastrous winter this year, and Russia, which will barely grow in the face of economic sanctions imposed by Europe and the United States over the conflict in the Ukraine.

Germany has kept the European engine running even as other major economies like those of the United States, China and Russia are dragging down global growth prospects for the year, the IMF said.

The Fund revised down its expectations for the world economy this year. It predicted global growth of 3.4 percent in 2014, which is down from a forecast of 3.7 percent from the IMF’s last report in April.

The pessimism was the result of major downward revisions to growth for the United States, which suffered a disastrous winter this year, and Russia, which will barely grow in the face of economic sanctions imposed by Europe and the United States over the conflict in the Ukraine.

The United States is seen growing just 1.7 per cent, down from an April forecast of 2.8 per cent. Russia’s economy will edge up just 0.2 percent, revised down 1.1 percentage points from the Fund’s April report. Mr. Blanchard described a “near freeze in investment decisions” in Russia amid major “geopolitical tensions” over its involvement in the Ukraine.

China and other major emerging economies have also had a worse start to the year than expected, though their growth rates are still well above the average of wealthier nations. China is expected to grow 7.4 percent this year, down 0.2 percentage points from the IMF’s last forecast in April.

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