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Germany cuts growth forecast, warns of recession

Germany's central bank has lowered its growth forecast for 2013, predicting that Europe's biggest economy will expand by just 0.4 percent.

Germany austerity euro zone 2012 6 8Enlarge
A Guy Fawkes mask graces the Justice Fountain during the Blockupy protests on May 17, 2012 in Frankfurt, Germany. Long considered immune from the crisis, and from the protests that have accompanied it elsewhere, Germany's economy is now showing signs of weakness. Is this safe haven not very safe after all? (Carsten Koall/AFP/Getty Images)

BERLIN, Germany — The German central bank has cut its 2013 growth forecast and warned that Europe's biggest economy could slide into recession.

The Bundesbank now expects Germany's economy to grow by 0.4 percent in 2013, a quarter of the 1.6 percent annual growth it forecast back in June.

It has also revised its prediction for 2012 to just 0.7 percent growth, down from 1 percent previously.

The downgrade follows an exceptionally slow six months, according to Agence France Presse, and the Bundesbank warns that Germany may even slide into a recession — defined as two successive quarters of negative growth — in this quarter and the next.

"The cyclical outlook for the German economy has dimmed," the Bundesbank said in a statement. "Enterprises are cutting back their investment and hiring fewer new staff. The main drags are not only the adjustment recessions in some euro-area countries but also the slowing of the global economy."

Yet while there's a risk that the debt crisis will worsen and continue to drag Germany's growth down, it is also "conceivable" that the opposite will occur, the bank said.

So long as the global economy begins to recover, the bank expects Germany's GDP to grow by 1.9 percent in 2014. "The sound underlying health of the German economy suggests that it will overcome the temporary lull without major damage to employment," according to Bundesbank President Jens Weidmann.

The latest economic indicators aren't all bad: Reuters cited figures that show business morale rising for the first time in seven months and unemployment growing less than expected. And just today, the Finance Ministry announced that industrial orders received an unexpected bounce in October thanks to growing demand outside the euro zone.

For the euro zone as a whole, however, the outlook is gloomy. The European Central Bank had forecast that the bloc would grow by 0.5 percent in 2013; yesterday, it said it would contract by 0.3 percent.

More from GlobalPost: Why Germany is uber-short on labor

http://www.globalpost.com/dispatch/news/regions/europe/germany/121207/germany-cuts-growth-forecast-warns-recession