IMF to cut German growth estimates

The International Monetary Fund will cut its estimates for German economic growth in 2014 and 2015 to around 1.5% for each year, due to the crises in Ukraine and the Middle East, weekly German magazine Der Spiegel said yesterday.

The forecasts are due to be published tomorrow.

In July, the IMF predicted Europe’s largest economy would expand by 1.9% this year and by 1.7% next year.

Der Spiegel said the IMF would also call on the German government to do more to boost public and private investment, as this would help prop-up growth in the short-term and also bring benefits for the country in the medium-term.

Europe’s largest economy had a strong start to the year but shrank by 0.2% in the second quarter and some economists have warned of the risk that it was in recession between July and September, especially as business and investor sentiment has weakened.

German Finance Minister Wolfgang Schaeuble has said German growth may just miss the 1.8% currently forecast by the government this year, according to sources.

Meanwhile, world policymakers gather in Washington later this week to ponder how to sustain economic recovery at a time when the US is about to turn off its money taps.

Given the same G20 finance ministers and central bankers met in Australia only two weeks ago, it is not hard to guess how the debate will go: Most of the western world will urge the eurozone to do more to foster growth and Germany will warn against letting up on austerity.

That debate has circled within the G20 for three years and is fizzing now in Europe, with France, Italy and others pressing for a loosening of fiscal strait-jackets to allow time for economic reforms in defiance of Berlin’s wishes.

The Federal Reserve will end its programme of bond-buying with new money later this month, a prospect that has already driven the dollar higher and created jitters about a reversal of money flows out of emerging markets back into the US.