German economic woes increase

Businesses in Frankfurt are already feeling the squeeze

The International Monetary Fund (IMF) has joined other leading institutions in slashing forecasts for Germany's economy.

The fund has revised down its estimate of German GDP (Gross Domestic Product) growth to 1.25%, from 1.9%, a similar level to the downgrade made by the German Ifo institute last month.

But the German government still insists that the economy is on track to grow by 2% this year.

US impact

Germany is the largest economy in the eurozone and it is the most exposed to what is going on in the rest of the world.

It has felt the brunt of the slowdown in the US thus far much more than France.

This causes difficulties for the European Central Bank which must find the best economic policy for all twelve members of the eurozone.

Sturdy growth is needed to help Germany reduce its unemployment tally of 8.9% and its state borrowing.

And Germany is essential to the future economic performance of the eurozone since it accounts for about one third of the total GDP of the 11 member countries of the euro.

2002 return to growth

On the same day as the IMF revision, one of the leading economic research institutes in Germany slashed its forecast for German growth to just 1%.

DIW says that energy and food inflation is the main cause of the slowdown, but also acknowledged the impact of the US and Japanese economic turmoil.

The opposition party and business leaders are already pressing for more tax cuts to boost both spending and business.

Despite this year's gloomy outlook, both organisations predict a recovery in 2002, with growth forecast at 2% by the IMF and 2.2% by the DIW.