Germany Cuts 2013 GDP Forecast


For further evidence that the eurozone's infatuation with austerity is not working, look no further than today's announcement from Germany that the largest economy in Europe will post 2013 GDP growth of just 0.4%. That is even less than the 0.7% growth expected for 2012. Fourth-quarter gross domestic product actually contracted by 0.5%.

The government's economy minister said:

We assume that the phase of weakness this winter will be overcome in the course of the year and that our economy gains traction again.

Germany expects domestic demand to drive growth in 2013, at the same time that unemployment is expected to rise from 6.8% to 7%. Exports fell 3.4% in November and export growth for 2013 is forecast to fall from 4.1% in 2012 to 2.8%. Growth in imports will rise from 2.3% last year to 3.5% in 2013.

Contributing to Germany's economic weakness is the stronger euro, which is trading slightly below $1.33 this morning after touching $1.34 on Tuesday. The relative strength of the currency makes eurozone exports more expensive to foreign buyers.

Germany's borrowing totaled just 0.32% of GDP in 2012 after adjustments. So while the government could have borrowed at very low interest rates, it chose instead to bite the bullet. Now all it has to show for that bite of austerity is a lagging economy.

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