IMF sees 3.2 pct German growth this year

July 12, 2011 - 12:29 PM

BERLIN (AP) — Germany's economy will grow by a healthy 3.2 percent this year but the country could do more to encourage growth in the long term, a report from the International Monetary Fund said Tuesday.

Europe's biggest economy has recovered spectacularly from the global financial crisis and grew by 3.6 percent last year, fueled by strong exports and helped more recently by signs of improving domestic demand.

The official German government forecast for 2011, made in April, is for growth of 2.6 percent, though the finance minister recently said growth could come in at 3 percent or higher.

Germany is "now in a position that most advanced countries can only dream about," the deputy director of the IMF's European department, Juha Kahkonen, said as he presented an annual report.

However, "all is not well going forward," he added. "The current high growth rates mask the fact that the potential growth rate ... in the medium term remains in our assessment still at about 1 1/4 percent, and Germany can do better."

The momentum is expected to slow as world trade growth slows and governments cut spending, the report said. It forecast somewhat slower growth of 2 percent in 2012.

The report pointed to a need to strengthen domestic demand in view of the risks of slowing exports.

"Arguably, the strong growth prospects in emerging markets offer Germany continued opportunities," it said — but it noted that Germany would have to work to maintain its market share there given the "growing sophistication" of producers from such markets.

Kahkonen argued that Germany would do well to encourage more investment and innovation, and ensure that groups such as the women and the elderly remain in the labor market.