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Debt crisis weighs on German growth outlook

By David Rising

Associated Press

Published: Friday, Dec. 9 2011 6:26 a.m. MST

BERLIN — Germany's central bank on Friday lowered the country's growth forecast for 2012 as the debt crisis weighs on the prospects of Europe's largest economy.

Underlining the difficulties Germany faces, the Federal Statistical Office said in a separate report that exports, which help drive the economy, dropped sharply during October.

The Bundesbank said it was lowering the 2012 growth forecast for Germany from 1.8 percent to 0.6 percent due to ongoing economic struggles in the 17-nation eurozone — the main market for the country's exports.

"The crisis in public finances in a number of euro-area countries, the ensuing uncertainty and general economic slowdown are increasingly placing a strain on the economic activity in Germany," the bank said in a statement.

Still, the bank said that the "domestic conditions for an extended, broadly based upswing are still intact" and that it was predicting growth to pick up to 1.8 percent in 2013, assuming that there will be "no further significant escalation of the sovereign debt crisis."

This year's GDP growth is expected to come in at 3 percent, down from a previous forecast of 3.1 percent, the Bundesbank said. The government forecasts growth of 2.9 percent this year, and a slowdown to 1 percent in 2012.

The leaders of the eurozone countries and six other European Union nations agreed early Friday to forge a new treaty that will enforce stricter budget rules seen as crucial to solving Europe's debt crisis and holding the woebegone currency-bloc together. But details still need to be hashed out and it remains to be seen whether the step will be the panacea many have hoped for.

Meantime, the statistics office reported that German exports were down 3.6 percent compared with September — following two monthly rises — while imports were down 1 percent according to adjusted figures.

October exports were €88.1 billion ($118 billion) in adjusted terms, while imports totaled €75.5 billion, for an adjusted trade surplus of €12.6 billion.

Compared to October 2010, however, exports were up 3.8 percent in unadjusted terms.

In a separate report, the statistics office said consumer prices were unchanged on the month in November, but up 2.4 percent over the same month last year.

Though the annual inflation rate was down from 2.5 percent in October and 2.6 percent in September, the office noted that it "remained markedly above the two-percent threshold."

The rate was driven largely by price increases in energy products, including motor fuels and household energy.

The European Central Bank, which targets an inflation rate of around 2 percent, lowered its benchmark rate on Thursday to 1 percent in an effort to keep inflation in check.

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