Berlin slashes growth outlook

The German government on Tuesday slashed its growth outlook, saying the country's economy was navigating "difficult waters" because of worsening conditions around the world.

German Economics Minister Sigmar Gabriel said Berlin expected gross domestic product (GDP) to expand by only 1.2 percent in 2014, down from an earlier estimate of 1.8 percent. He also revised projections for next year to 1.3 percent annual growth from 2 percent.

"Geopolitical crises have also increased uncertainty in Germany with the only moderate global economic development acting as a drag on the economy," Gabriel added.

The government's outlook revision followed a similar assessment by the country's leading economic institutes last week, which especially blamed the stalled recovery in the eurozone for Germany's troubles.

In addition, the planned introduction of a national minimum wage and higher pensions outlays adopted by the government recently would further throttle growth, they said.

Savings-versus-spending debate heats up

After robust growth of 0.8 percent in the first quarter of this year, the German economy slipped back, contracting by 0.2 percent between April and June. As the government is waiting for third-quarter growth figures, due to be released later this month, Economics Minister Gabriel said he did not expect the economy to contract again.

Pointing to the robust state of the German labor market, with its low unemployment, he said: "This is the foundation on which higher wages and increased household spending will continue to rest."

As Gabriel banks on rising consumption to prop up the German economy in the remaining months of 2014, calls are mounting for the government to boost public investment for higher growth.

So far, however, Finance Minister Wolfgang Schäuble has resisted such calls, saying a balanced budget would remain Berlin's number one priority.

Schäuble is also under pressure from eurozone members, notably France and Italy, to open the German public purse as well as allow its partners in the currency area higher budget deficits to spur growth.

uhe/cjc (dpa, AFP, Reuters)