GERMANY’S GOVERNMENT has nearly halved its forecast for growth next year to 1 per cent due to dampened expectations for exports, compounding fears that Europe’s powerhouse economy is facing a sharp slowdown.

German chancellor Angela Merkel’s government yesterday cut its forecast for 2012 growth from a previous 1.8 per cent, as well as reducing its outlook for this year to 2.9 per cent from 3 per cent.

“The pace of expansion has slowed down, as we expected,” German economy minister Philipp Rösler said, adding, however, that “our economy remains on a growth path”.

The economy ministry, which makes the forecasts for the government, said weaker exports due to a global slowdown were the main reason for the easing pace of growth.

Exports were expected to rise by 7.5 per cent in 2011 and just 3.5 per cent in 2012.

“Domestic demand will become ever more the pillar of economic growth in Germany,” the ministry said.

“Overall growth will be sustained almost exclusively by this over the course of this and next year.”

Germany’s export-driven economy has recovered swiftly from the financial crisis, outperforming its peers and providing a crucial growth engine for Europe.

German unemployment will continue to fall next year, with the jobless rate dropping to 6.7 per cent from 7 per cent in 2011, the economy ministry said.

But recent indicators have emphasised the prospect of German expansion easing due to a global slowdown, with industry output and orders slumping in August.

Forward-looking indicators are also gloomy. The influential Ifo business climate index, due out on today, is expected to fall in October for the fourth month in a row.

The economy ministry said uncertainty arising from the debt crisis was halting the pace of global expansion. – (Reuters)