German government slashes GDP growth forecast as extended lockdown bites

By Michael Nienaber

BERLIN (Reuters) - The German government on Wednesday slashed its growth forecast for Europe's largest economy to 3% this year, a sharp revision from last autumn's estimate of 4.4%, caused by a second coronavirus lockdown.

"We are currently seeing a flattening of the number of infections, which is giving hope," Economy Minister Peter Altmaier said, but he cautioned that the situation remained serious because of a more infectious virus variant.

"We must therefore not gamble away what has been achieved," Altmaier said, against the backdrop of calls to ease lockdown measures soon.

Chancellor Angela Merkel and state leaders agreed last week to extend the lockdown until mid-February as Germany, once a role model for fighting the pandemic, struggles with a second wave and record daily numbers of COVID-19 deaths.

Altmaier painted a picture of a two-speed economy in which industry continued to do well while service were was suffering under the curbs that were imposed early in November and tightened in mid-December.

"The picture is divided: While industry currently continues to be robust, the service sector is badly affected," Altmaier said, adding that this was slowing down the recovery.

The economy shrank by a smaller-than-expected 5% last year. That still marked the second-biggest economic plunge in post-war history, surpassed only by the record -5.7% in 2009, during the financial crisis.

German business morale slumped to a six-month low in January as the second wave of COVID-19 halted the recovery, the Ifo institute said on Monday. But it added that sentiment among exporters in the industrial sector improved significantly.

This was followed by the GfK consumer sentiment index on Wednesday that showed consumer morale fell a fourth month in a row heading into February, as the extended lockdown took hold.

(Reporting by Michael Nienaber; editing by Thomas Seythal, Larry King)

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