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Germany is likely to be the world’s worst-performing major developed economy for the second year in a row.
In its latest World Economic Outlook report, the International Monetary Fund (IMF) predicted that there will be no growth in Germany this year.
This follows a 0.3 per cent contraction last year and cements the country’s status as “Europe’s sick man”.
Stagnant: In its latest World Economic Outlook report, the International Monetary Fund predicted no growth in Germany this year
All other countries in the Group of Seven major industrialized countries (composed of the United States, Canada, the United Kingdom, Germany, Italy, France and Japan) are growing.
The IMF raised its growth forecast for the UK for this year to 1.1 percent, after forecasting just 0.5 percent in April. Britain’s growth is also expected to accelerate, to 1.5 percent, in 2025 “as falling inflation and interest rates spur demand.”
The report warns of “persistent weakness in the manufacturing sector” in Germany and Italy. But while Italy benefits from Europe’s £1.7 trillion Covid-19 recovery fund, Germany is “experiencing strains from fiscal consolidation and a sharp drop in property prices”.
Germany’s once-mighty industrial sector was long the driving force behind the eurozone’s most powerful economy.
But it was heavily reliant on cheap Russian gas and has been mired in crisis since the 2022 invasion of Ukraine sent energy costs soaring.
Household spending also remains depressed, while political instability is taking its toll with Chancellor Olaf Scholz’s government torn by conflict.
The country’s huge car manufacturing sector is in crisis amid the shift to electric vehicles, a market in which it is struggling to compete with cheap imports from China.
The latest IMF forecasts were released at its annual meeting
in Washington. The intergovernmental group left its global growth outlook for this year unchanged at 3.2 percent and lowered it from 3.3 percent to 3.2 percent for next year.
On the positive side, IMF chief economist Pierre-Olivier Gourinchas said the world was overcoming the cost of living crisis that has been putting pressure on consumers in recent years.
“It appears that the global battle against inflation has largely been won,” Gourinchas said yesterday, “even if price pressures persist in some countries.”
Now that inflation is “close to central bank targets,” interest rates should begin to fall, he suggested.
Gourinchas said it was a “great achievement” that this had been achieved without triggering a global recession.
But he also warned that “downside risks are increasing and now dominate the outlook.”
Gourinchas pointed to the risk of a conflict in the Middle East driving up oil prices, as well as interest rates remaining high for too long and ‘undesirable trade and industrial policies’ (code for strong trade tariff barriers, a policy favored by US presidential candidate Donald Trump). .
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