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IMF sees stronger growth in Germany next year

Tuesday - 8/6/2013, 3:18pm  ET

FRANK JORDANS
Associated Press

BERLIN (AP) -- Germany will see stronger economic growth next year as the country benefits from low unemployment, solid public and private finances, and a gradual recovery in the rest of Europe, the International Monetary Fund said Tuesday.

In its latest country report on Germany, the Washington-based IMF stuck by its forecast of 1.3 percent growth next year, up from 0.3 percent predicted for in 2013, if economic trends hold. The German government's last prediction in April had been for 0.5 percent growth this year and 1.6 percent in 2014.

"Germany's fundamentals remain strong, including public, household and corporate sector balance sheets," said Subir Lall, the fund's mission chief for Germany.

He added that the country's economic strength underpins Germany's role as an "anchor for stability" in the European Union. Many of the other 16 countries that use the euro currency have gone through a period of economic turmoil in recent years that some economists believe may now be coming to an end. While the crisis in Spain, Greece, Portugal and elsewhere has affected Germany, the country has benefited from healthy exports to countries like China.

That has helped it keep down unemployment, which was at 5.4 percent in June, compared with 12.1 percent for the eurozone as a whole. The latest figures for industrial orders, meanwhile, showed a strong 3.8 percent gain for the month.

The greatest threats to the German economy are a resurgence of the crisis in the eurozone, and a global slowdown led by major emerging economies, said Lall.

And while praising the government's solid budget, he warned against overdoing debt reduction by starving the economy of necessary stimulus in the form of public spending.

Chancellor Angela Merkel has loosened the purse strings in recent months ahead of general elections in September, promising more money for families and retirees.

But the IMF report said Germany still needs to do more to lower the tax burden, address economic disincentives to having children and encourage immigration. Experts say the country faces a demographic time bomb because of low birth rates and insufficient immigration.

Lall noted that while German wages increased on average 3.4 percent in 2012, "there is scope for continuing healthy wage developments and this will be helpful in stimulating domestic demand."


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