BERLIN Aug 2 German economic growth will shrink
towards zero in the second quarter due to the Ukraine crisis and
the tough new economic sanctions imposed on Russia from 0.8
percent in the first quarter, the head of Germany's Ifo
institute said on Saturday.
Ifo president Hans-Werner Sinn wrote a guest column for
Wirtschaftswoche magazine in which he said the worsening crisis
meant forecasts that Europe's largest economy would expand by
0.3 percent in the second quarter have to be revised down.
"It looks like there will be a longer break in the economic
upturn that began in the second half of last year and continued
through the winter months," wrote Sinn, one of Germany's most
high profile economists.
"The growth forecast that Ifo presented last month will
likely have to be revised downward. The assumption that the
second quarter will have had grown 0.3 percent from the first
quarter can no longer be held onto. It's more likely that there
was zero growth in the second quarter," Sinn wrote.
The European Union and the United States announced further
sanctions against Russia last week that targeted its energy,
banking and defence sectors in the strongest international
action yet over Moscow's support for rebels in eastern Ukraine.
Before the downing of Malaysian flight MH17 over rebel-held
territory in eastern Ukraine by what Western countries say was a
Russia-supplied missile, German industry had campaigned hard and
effectively against imposing tougher sanctions against Russia.
They had long tried to dissuade Chancellor Angela Merkel
from imposing tougher sanctions on Russia, warning of lasting
damage to domestic companies and the broader economy.
German exports to Russia nevertheless dropped by 14 percent
to about 10 billion euros in the first four months of 2014,
according to data from the Statistics Office.
German business leaders had said a decline in German-Russian
trade was putting some 25,000 jobs in Germany at risk. Some
300,000 German jobs are dependent on trade with Russia, the
Committee on Eastern European Economic Relations says.
Sinn added growth forecasts for the third quarter will also
have to be changed due to the Ukraine crisis and sanctions.
"The forecast growth for the third quarter of 0.4 percent
will likely have to be revised down. That will significantly
reduce the annual growth forecasts for 2014 and 2015."
Germany's economy grew by 0.8 percent in the first quarter -
its fastest rate in three years - on the back of an unusually
mild winter. Growth was expected to slow in the second quarter.
The federal statistics office will publish its first
estimate of second quarter growth on Aug. 18.
The Bundesbank raised its 2014 growth forecast by 0.2
percentage points to 1.9 percent on June 6 and kept its 2015
estimate at 2.0 percent.
In its monthly report on July 21, the Bundesbank said the
German economy probably stagnated in the second quarter as
industry shifted down a gear in the face of geopolitical
(Reporting By Erik Kirschbaum, editing by David Evans)