Germany, the growth engine in Europe, is forecasted to witness a slowdown of its economic growth in 2012 before recovering in 2013, a report released by the Organization for Economic Cooperation and Development (OECD) on Tuesday.
Calling for measures to strengthen its potential in the long run, the OECD said in its short-term projection that the GDP growth of Germany without working day adjustment in 2012 could stand at 0.4 percent. The growth is forecasted to reach 1.9 percent in 2013.
The OECD projection echoes those from institutions and economists including the Economy Ministry of Germany, which see a sharp drop of German growth in 2012.
The Economy Ministry earlier this year announced a cut of its forecast for the GDP growth in 2012. It said that the economy can grow by 0.7 percent, less than its forecast of 1 percent several months earlier.
The OECD cited slowing investment and consumption spending, which may temporarily suffer from adverse confidence effects, as well as from weaker trade growth as major factors behind the projected slowdown.
A report released by the OECD said a rapid and forceful recovery from the deep recession in 2008-2009 has been witnessed in Germany. However, growth has slowed and the outlook has weakened considerably.
"First, this reflects a moderation of growth rates from their cyclical highs towards their lower potential rates, indicating that the prior upswing was mainly a cyclical one," said the report.
"Second, this slowing is reinforced by a generalized slowing of the world economy, unusually high uncertainty and business confidence that is declining from high levels," added the report.
The OECD projected that the potential growth of Germany is set to fall below 1 percent at the beginning of the next decade.
"This primarily reflects a decline in potential employment by around 0.5% year over the period 2016-25 as the German population ages," said the report.
It was also mentioned that Germany has made major progress on the structural side, notably on the labour market, which "paid off handsomely" in the recent recession.
Efforts should be made to strengthen the growth potential, according to the OECD. It suggested that domestic demand be strengthened, labor output be raised and new sources of growth in climate change mitigation should be exploited.
The labour market still remains in relatively good shape as Germany reported a historic low of unemployment rate of 5.7 percent.
Unemployment barely increased during the crisis and has fallen significantly since then, the OECD said in the report, added that it was due to a decline in structural unemployment as well as a significant increase of flexibility in working hours.
On the other hand, signs indicating a strong momentum of growth in Germany recently mushroomed.
The Federal Statistical Office of Germany said Tuesday that the number of employees in manufacturing sector climbed in December.
At the end of December 2011, nearly 5.2 million people worked in local units of manufacturing and it was about 177,600 persons or 3.6 percent up than in December 2010. The earnings amounted to 18.9 billion euros; that was 4.9 percent more than in December 2010, according to the office.
A recent survey of Ifo Institute, a Munich-based think tank, showed that people are confident about the economic outlook in Germany.
The regularly conducted survey, based on 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing, said the Ifo Business Climate for trade and industry in Germany improved for the third time in succession in January.
The sentiment on the stock markets in Germany has rallied since the beginning of the year. The benchmark DAX index has advanced by more than 14 percent.