BERLIN – Two years after expanding at its fastest rate since reunification, Germany's economic growth is seen at just 1 percent next year, finally hit by the euro zone crisis that has hammered most of its partners.
The government chopped its 2013 growth forecast on Wednesday to 1 percent, down from a 1.6 percent forecast in April. For this year, the economy ministry expects growth of 0.8 percent, up from 0.7 percent in April.
Germany's economy powered through the first two years of the euro zone's sovereign debt crisis, posting 4.2 percent growth in 2010 and 3 percent last year at a time when some peers were seeking bailouts and others were grinding to a halt.
Its export strength saved the currency bloc from falling into recession up until the second half of this year.
But uncertainty about policymakers' ability to curtail the crisis has resulted in companies postponing investment, and turmoil in Germany's main trading partners could weigh on exports in the second half of the year, the ministry said.
"The good news is Germany is standing its ground despite all global economic turmoil and remains on track for growth," Economy Minister Philipp Roesler said.
"But Germany is navigating stormy waters because of the European sovereign debt crisis and an economic weakening in emerging nations in Asia and Latin America."
German companies are feeling the pinch. Deutsche Telekom
MAN, which also makes diesel engines and turbo machinery, also said it was bracing for a "tough" year in 2013.
However, after years of wage restraint and job market reforms, Germany is benefiting from a healthy labor market and employees' wallets may not actually shrink.
Real wages should rise by 2.8 percent this year and 2.6 percent next year, outpacing inflation forecast at 2.0 and 1.9 percent respectively and Roesler said private consumption, long subdued, would continue to be a main pillar of growth.
But the crisis looms large. On Wednesday, Bertelsmann Foundation forecast a global economic crisis if Greece were to leave the euro.
Even though more Germans in a recent poll want Greece to remain in the euro zone than want it out, the willingness of German citizens to give twice bailed-out Greece more credit if it fails to deliver on saving targets is wearing thin.
Roesler, who is leader of the Free Democrats, junior partner in the center-right coalition, said real incomes and consumption could rise even more strongly - by 0.2 percentage points each - if a surcharge on renewable energy were not raised next year.
Subsidies levied on German consumers to support renewable power will rise by 47 percent next year, but the rise has become an issue within the coalition and has opened up divisions between the ruling parties. (Editing by Gareth Jones/Jeremy Gaunt)