In its latest forecasts, the IMF said the German economy would grow by just 0.7 percent this year – down from earlier predictions of 0.8 percent. If Germany can survive plunging towards a recession over the next six months, gross domestic product (GDP) has been forecast from the IMF to increase by 1.7 percent in 2020. But this is still down from growth forecasts of 2.1 percent from a year ago.
The latest downgrade has sparked fears Europe’s biggest economy is falling deeper into trouble, which could cause chaos throughout the eurozone.
On Friday, Angela Merkel conceded Europe’s largest economy was in a “somewhat more difficult phase” after a decade of growth.
But as when Germany almost tumbled into recession at the start of this year, she attempted to calm fears over a possible financial crisis.
Ms Merkel told a news conference: “That is for us an incentive not just to continue work in the area of research and development but of course also to stimulate the domestic economy.”
But last week, a financial analyst warned Germany is teetering on the edge of a huge economic crisis as Europe’s biggest economy sinks into an “inevitable”recession.
Patrick Hussy, managing director of the Frankfurt investment boutique Sentix, pointed blame towards global trade wars, with Germany being particularly sensitive to developments in the ongoing feud between the US and China, as well as political uncertainty surrounding Britain leaving the European Union.
He said an apparent de-escalation between the US and China at the recent G20 summit had offered hope the decline in Germany’s economy would slow or even stop.
But Mr Hussy warned: “The economic situation in the Eurozone is again down by 4.2 points and has fallen to its lowest level since February 2015. At 1.8 points, they are only marginally above the Expansion threshold.
“For the German economy it looks even worse. The high dependency on exports and the sales market China is increasingly becoming a burden and the customs dispute hans like a sword of Damocles over the former star model of the euro region.
“The country’s key industry, the automotive industry, is simply not emerging from the crisis.
“The political situation also does not contribute to confidence building. The back-and-forth about who will be the next EU Commission President is the next slap in the face for all voters.
“The overall index for Germany is at its lowest level since November 2009 and is clearly in the negative. A recession seems inevitable.”
The IMK economic think-tank has also warned there is a 36.6 percent risk of a recession in Germany over the next three months.
This is up from 30.9 percent in June and twice as high as in July last year.
The think-tank blamed the worsening mood in German businesses, a decline in orders from abroad and a fall in vacancies in the labour market.
Steffen Lampeter, head of the BDA employers association, said: “Our members are telling us the economic boom is over.
“We are seeing sideways movement, with the risk of a downturn.
“The German economy is preparing for harder times than it has experienced in the last five years.”
Timo Wollmershauser, deputy director at think-tank the Ifo Centre for Macroeconomics and Surveys, added German manufacturing has “effectively been in recession since mid-2018.”
Meanwhile, Italy’s GDP estimates have been downgraded by the IMF, with budgets ang global uncertainty blamed.
The GDP for 2020 has dropped to 0.8 percent, while this year it looks to have a GDP growth of just 0.1 percent.
The IMF said “in Italy the uncertainty over the budget remains similar to that observed in April with an impact on investment and internal demand”.
Additional reporting by Monika Pallenberg.