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IMF: Germany shouldn't be too fast

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Staff writer ▼ | August 7, 2013
The International Monetary Fund (IMF) warned Germany against being overly ambitious in consolidating its budget. IMF keeps its forecast for 0.3% German growth this year and says it welcomes Berlin's modest loosening of fiscal policy.
GermanyThe International Monetary Fund (IMF) warned Germany against being overly ambitious in consolidating its budget. IMF keeps its forecast for 0.3% German growth this year and says it welcomes Berlin's modest loosening of fiscal policy.


However, IMF also said proactive fiscal policies "would be needed" if growth prospects soured. Some IMF directors already saw scope for more stimulus.

"It will be important to avoid continued fiscal overperformance as this may imply a contractionary fiscal stance. Macroeconomic policy settings now need to be appropriately supportive of growth in Germany given the substantial downside risks. The outlook for the remainder of 2013 and next year is heavily dependent on a gradual recovery in the rest of the euro area and a sustained reduction in uncertainty," the IMF wrote in a regular review of the German economy.

Berlin must be prepared to invoke "the escape clause under the debt brake rule", a legal commitment to cut its structural deficit to no more than 0.35 percent of gross domestic product, in the case of a large shock to the economy, the IMF said.

Growth should return to potential in 2014, although it will probably only reach 1.3 percent, according to the IMF. While the German economy propped up growth in the euro zone during the early years of the region's debt crisis, it faltered at the end of last year and only narrowly avoided a recession at the start of 2013.

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