IMF urges Germany to keep spending amid low growth

IMF halves Germany's 2013 growth outlook, warns of too much budget tightening

Associated Press
IMF urges Germany to keep spending amid low growth
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German Chancellor Angela Merkel stand behind a window with a reflection of the European flag as she waits for the arrival of King Willem-Alexander of the Netherlands and Queen Maxima of the Netherlands, unseen, for a meeting at the chancellery in Berlin, Monday, June 3, 2013. (AP Photo/Markus Schreiber)

BERLIN (AP) -- The International Monetary Fund on Monday halved its growth forecast for Germany as the eurozone recession takes its toll on the bloc's largest economy.

In its regular assessment of the country, the Washington-based IMF also called for a more proactive immigration policy to increase the labor force and warned Berlin that overzealously slashing spending could dent growth further.

The revised 2013 growth forecast of 0.3 percent, down from 0.6 percent only two months earlier, is a result of the persistent uncertainty stemming from the debt crisis in the 17 European Union countries that use the euro, the IMF said. This has led to a worse-than-expected first-quarter performance and hurt both export prospects and investment, it added.

"This could be a drag on investment for longer than we expected," said the IMF's Germany mission chief, Subir Lall, at a news conference in Berlin. The IMF's 2014 growth forecast for Germany of 1.5 percent will therefore also be revised downward, probably to about 1.3 percent, he said.

If German growth slows down further this year as predicted by the IMF, it will make it more difficult for Europe as a whole to emerge from the present recession.

Germany's government expects the country's economy to grow by 0.5 percent this year and 1.6 percent in 2014. It grew by 0.7 percent in 2012 — much slower than the two previous years but still a positive spot in contrast with much of Europe.

The IMF — which has the reputation of lecturing governments to trim deficits and keep their budgets in order — said in light of the bleak outlook, Germany should stick to its current prudent budget policies and "avoid overperforming on (fiscal) consolidation" which would harm growth.

Germany last year achieved a budget surplus under the EU's debt criteria, thanks to a robust economy, low unemployment and exceptionally low borrowing costs. The country's overall deficit stands at about 80 percent of GDP.

Lall said the IMF anticipates a "marginal loosening" in Germany's budget policy and only modest austerity measures in the coming years to ensure that "fiscal policy will not act as a drag on the recovery of the economy."

The IMF also urged Berlin to lower workers' tax burden, increase the availability of full-time high-quality childcare and help the immigration of skilled labor to promote growth and keep its workforce healthy.

Germany has a low fertility rate and an aging population, which is already resulting in labor shortages. The country is attracting more talent from the countries hit hard by Europe's debt crisis, but experts say more immigration would be needed to reverse the trend of the country's declining demography.

"There have to be continuous measures to increase the labor force," Lall insisted.

The IMF's warning came on the backdrop of new census data published last week that found Germany's population was about 80 million, or 1.5 million people less than had been thought.

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