IMF Cuts 2006 German Growth Forecast

The International Monetary Fund (IMF) has revised downwards its forecast for German growth next year to 1.3 percent from 1.8 percent previously, a source close to the fund said on Wednesday. At the same time, the IMF revised upwards slightly its forecast for growth of the eurozone's biggest economy this year to 1.0 percent from an earlier forecast of 0.8 percent, the source said. The fund's 2006 forecast, officially scheduled to be published

later on Wednesday, was less optimistic than the German government, which is forecasting gross domestic product (GDP) growth of 1.6 percent next year. But other observers are also sceptical about the strength of any German recovery. The Berlin-based think-tank DIW said in its latest weekly report that it was penciling in growth of just 0.9 percent this year and only 1.5 percent next year. "No strong upturn is on the horizon," DIW said. Growth would continue to be driven primarily by exports, while domestic demand was expected to remain weak. "So far, the spark from booming exports has not been able to jump over to domestic demand," DIW wrote. "The unexpectedly high rate of growth in the first quarter was

solely attributable to buoyant foreign trade." German GDP expanded by 1.0 percent and was expected to stand at 10.9 percent in 2005 and decline to 10.1 percent in 2006. Nevertheless, there were substantial risks to its latest forecasts, DIW said. The prognoses were made on the assumption that oil prices would decline to $48 (39.83 euros) per barrel this year, that the euro exchange rate would average around $1.22 and that the European Central Bank would cut interest rates by half a percentage point in the coming months. "The likelihood is big that some of these assumptions will not be met," DIW said.