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Germany's Economic Gloom Deepens with Cut to Growth Forecast

BERLIN, Feb 21 (Reuters) - The German government expects the economy to grow 0.2% this year, far less than a previously forecast 1.3%, as weak global demand, geopolitical uncertainty and persistently high inflation dent hopes for a swift rebound.

Europe's largest economy shrank by 0.3% in 2023, making it the world's worst performing major economy, and it is broadly expected to enter another technical recession in the first quarter of this year.

"The situation is challenging, extremely challenging," Economy Minister Robert Habeck said in a news conference presenting the government's 2024 economic report.

"We have to do more ... in order to strengthen and maintain Germany's competitiveness in a completely changed global environment," he said.

The economy is set to grow by 1% next year, Habeck said, adding that inflation is expected to be around 2% in 2025.

The government's report listed high inflation and a resulting loss of purchasing power among the challenges, as well as geopolitical crises and interest rate hikes.

The weakening global economy was also a reason for the reduced growth forecast, Habeck said.

"The growth of German GDP is extremely dependent on world trade. Global trade is developing at a historically low level," he added.

Germany's economic advisers plan to follow the federal government's lead and reduce their forecast for economic growth in 2024, adviser Ulrike Malmendier told Reuters in an interview.

"I think we will definitely be going in the same direction... that is what our numbers are indicating," Malmendier said.

The November forecast of the council of advisers to the government estimated growth would hit just 0.7% in 2024. The next official update is due in mid-May.

Germany's difficulties are aggravated by concerns about its attractiveness as a location for industry, as the government tries to reconcile its strict fiscal rules with the need to lure investment and fund a costly green transition.

The draft government report points to a "normalisation" of fiscal policy in 2024, after a constitutional court ruling forced the coalition to make painful cuts to its 2024 budget.

The government is expected to forecast an easing in inflation on Wednesday, from 5.9% in 2023 to 2.8% this year.

Reporting by Christian Kraemer, Rene Wagner, Riham Alkousaa and Reinhard Becker; Writing by Rachel More and Victoria Waldersee; Editing by Nick Macfie, Madeline Chambers and Barbara Lewis

Source: Reuters

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