Germany heads for recession as Greek economy booms, says IMF

GERMANY is tumbling towards recession as Greece enjoys a mini economic boom, in a reversal of fortunes compared to the crisis that pitted Berlin against Athens a decade ago.

Top economists have downgraded their forecast for German growth. By contrast, the International Monetary Fund (IMF) has upgraded its forecast for growth in Greece this year as it said the “outlook has improved notably”. Economists at Germany’s IFO Institute warned yesterday it will grow by only 0.7pc this year, not the 0.9pc predicted just a month ago.

Timo Wollmershäuser, head of forecasts at the IFO Institute, said that the revision was driven by a legal block on plans to use emergency Covid borrowing to fund spending this year.

The constitutional court’s decision will curtail spending by Berlin and make things tougher for German citizens and businesses.

Mr Wollmershäuser said: “Now that the German parliament’s budget committee has agreed on the federal budget, we estimate that it passed additional savings of just under €19bn [£16bn]. Companies and households will carry a greater burden or receive less relief, and government spending will be cut.”

Separately, the purchasing managers index, a survey of businesses, showed that economic activity in Germany shrank for the seventh consecutive month, falling from 47.4 in December to 47.1 this month. Any score below 50 indicates a contraction. In stark contrast, the Greek economy is buoyant. The IMF said the country is now on track for growth of 2.3pc in 2023 and 2.1pc in 2024.

The Washington-based fund said: “Greece’s economic outlook has improved notably. After a strong post-pandemic recovery, economic activity remained robust.

“Real GDP is expanding beyond its pre-pandemic trend level, driven by strong tourism recovery, and strengthening investment catalysed by Next Generation EU funding and foreign direct investment inflows.”

The Greek banking system, once the source of so much pain, is now “resilient” as lenders improve balance sheets. Public finances are also improving. The IMF added: “Strong growth and high inflation have brought the public debt-to-gdp ratio down below its pre-pandemic level.”

The divergent economic fortunes of Greece and Germany come more than a decade after the eurozone sovereign debt crisis, which swept through much of the continent in the aftermath of the credit crunch.

Greek banks ran into trouble and the indebted government lost the ability to borrow in financial markets. Athens was forced to seek financial help from the IMF and European institutions.