Germany slashes GDP forecast

BERLIN: The German central bank has slashed its 2013 growth forecasts for Europe's biggest economy as new data showed industrial production contracting sharply in October.

The Bundesbank now expects just 0.4% growth in 2013 -- down from its June forecast of 1.6% -- as recession and fiscal austerity take hold across the euro zone and following a slowing global economy.

"The economic outlook for Germany has dimmed," the Bundesbank said as it released the new growth projections.

At the same time, the bank noted that "there is reasonable hope that the phase of economic weakness will not last too long and Germany will return to growth".

Instead of its previous forecast of a 1% expansion this year, the Bundesbank now projects a growth rate of 0.7% as a result of the economy contracting in the final three months of 2012.

The 17-member euro zone lurched back into recession during the third quarter as governments cut spending to trim high deficit-and-debt levels.

The Bundesbank expects the German economy to rebound in 2014 and post an expansion of 1.9%.

The bank sees the unemployment rate climbing from 6.8% this year to 7.2% in 2013, before edging down to 7% in 2014.

The downbeat economic outlook means that inflation will slow from 2.1% to 1.5% in 2013, the Bundesbank forecasts. Consumer prices should come in at 1.6% in 2014.

Weaker inflation and slowing growth in Germany should also help to give the European Central Bank room to consider delivering an interest rate cut to bolster growth in the euro zone.

Germany's Ministry of Economics said industrial production had fallen by a more-than-forecast 2.6% in October, from a drop of 1.3% in the previous month.

"Therefore, the German economy should contract by 0.25% in the fourth quarter," said Commerzbank economist Ralph Solveen.

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