German Economy Will Fail to Pick Up in 2013, Advisers Say

Bloomberg: German economic growth will fail to pick up next year as the euro region’s sovereign debt crisis saps demand for German exports, the government’s council of economic advisers said in its annual report.

The German economy, Europe’s biggest, will expand 0.8 percent in 2013, the same pace as this year, the five-member council said in the 476-page report, which was published in Berlin today. Foreign trade won’t contribute to growth as imports accelerate faster than exports, it said.

“The second half of 2012 is characterized by widespread recessionary trends in the euro zonethat impact on the German economy through foreign trade and confidence” and damp the economy’s expansion through declining investment, the report said.

Germany’s economy is showing signs of weakness as governments and consumers across the region cut spending, reducing export demand. Factory orders fell the most in a year and business confidence dropped to the lowest in more than 2 1/2 years in September.

Chemicals maker Lanxess AG (LXS) said yesterday profitability declined in the third quarter as weaker demand for standard rubber left capacity idle, pushing shares down the most in three weeks. The automotive sector will remain weak in the fourth quarter, Chief Executive Officer Axel Heitmann said.

The European Central Bank said in its quarterly projections published Sept. 6 that the euro-area economy may contract 0.4 percent this year instead of a previously estimated 0.1 percent. That’s in line with the International Monetary Fund’s latest prediction.

‘Very Unclear’

While Chancellor Angela Merkel said on Nov. 5 there are first signs that the euro area is succeeding in overcoming its crisis, Swedish Prime Minister Fredrik Reinfeldt said at Stockholm University yesterday it’s “very unclear” how it will develop.

Europe has put in place a 500 billion-euro ($642 billion) bailout fund that can sell bonds to finance aid packages for distressed euro-region governments and offer credit lines. ECB President Mario Draghi announced details of a bond-buying program in September for countries willing to sign up to austerity measures.

The ECB’s bond-purchasing plan is “a last resort at best” and should be ended as quickly as possible because it blurs the line between monetary and fiscal policy, the German advisers said. The euro region needs an improved mechanism to ensure budgetary discipline, a banking union to stabilize the financial sector and insolvency rules for states, they said.

Jobs ‘Stable’

Germany’s labor market is still “very stable,” the advisers said, pegging the country’s unemployment rate at an average 6.9 percent next year, compared with 6.8 percent in 2012, the lowest level since German reunification in 1990.

That’s helping consumer confidence, which will climb to a five-year high this month even as the economy cools, according to market research company GfK. German growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first. Third-quarter data are due on Nov. 15.

Germany’s budget will be close to being balanced this year and next, helped by surpluses in social insurance coffers while local authorities are still running deficits, the advisers said.

Merkel’s government should be more ambitious in consolidating the budget, the council said, criticizing decisions to give benefits to parents who keep their preschool children at home, to boost minimum pensions and to abolish medical consultation fees.

The council of economic advisers, established in 1963, consists of Chairman Wolfgang Franz,Peter Bofinger, Claudia Buch, Lars Feld and Christoph Schmidt.

reporter on this story: Rainer Buergin in Berlin