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Euro crisis drags down German growth forecast

The German economy is grinding to a halt, according to forecasts from leading economic institutions. Growth will slump to just 0.8 per cent this year in the country and rise to only 1 per cent in 2013, as the eurozone crisis continues to hit Germany's exporters, the institutions predicted.

This is a substantial downgrading of German growth as the previous forecasts, issued in the spring, suggested 0.9 per cent growth for 2012 and 2 per cent for 2013.

However, the four German economic research institutes: Kiel-based Institute For Global Economic Research, the Munich-based Ifo Institute, the Essen-based Rhine Westphalia Institute and the Halle-based Institute for Economic Research, expect the eurozone to solve its current sovereign debt crisis in 2013, paving the way for a return to growth.

But the German DAX 30 market slumped on domestic as well as global growth worries following gloomy forecasts emerging from the IMF summit in Japan.

And such are the continuing concerns that the eurozone could implode that a senior IMF official has said that he would "welcome" Spain requesting the European Central Bank to buy its bonds.

Jose Vinals, director of the IMF's monetary and capital markets department, said: "It's up to the government and we would welcome any decision to take it (ECB bailout). If not, we understand they must have their reasons," he said.

Spain is in the throes of an economic depression, with unemployment touching 25 per cent and the government led by Mariano Rajoy likely to miss its deficit reduction target.

Mr Vinal's comments came after the IMF warned eurozone nations that its plans for dealing with the crisis were "critically incomplete" and risked a "spiral of capital flight, break-up fears and economic decline".

Unions in Greece have called a strike against the government's cuts to coincide with the European leaders' summit in Brussels on 18 October.