BERLIN (AFP) - The German economy, which grew strongly in the first half of this year on the back of robust exports, will see a slowdown next year as a result of the braking effects of runaway oil prices and a tailing off of foreign demand for German-made goods, top research institutes warned.
In the traditional autumn report published by Germany's six leading institutes, five of the think-tanks -- Ifo in Munich, HWWA in Hamburg, RWI in Essen, IfW in Kiel and IWH in Halle -- said they expected growth of the eurozone's biggest economy to slow to 1.5 percent next year from an anticipated 1.8 percent this year.
Only Berlin-based DIW was more optimistic, pencilling in growth of 2.0 percent in 2005.
The economic recovery in Germany "has strengthened noticeably in the first half of this year," the institutes said. Nevertheless, "compared with past periods of upturn, growth momentum remains weak", they said.
Growth impulses were coming solely from abroad "and they haven't yet jumped over to domestic demand, which has remained weak for an unusually long time", the report said.
And since "the global upturn, particularly in the United States and in China is losing speed, the impulses for the German economy coming from exports can be expected to weaken", the institutes said.
Oil prices, in particular, constituted a "special risk" for the global economy, since they will put the brakes on private consumption, the institutes warned.
The institutes said they expected household spending in Germany to begin to pick up early next year as consumers felt the positive effects of tax cuts and an improvement in the labour market.
However, "in the course of the year the improvement is likely to remain relatively modest, as the weaker medium-term growth outlook weighs on the income expectations of private households. Ongoing high energy prices will also act as a brake," the think-tanks said.
On the labour market, unemployment in Germany was seen coming down only marginally, with the unemployment rate falling to an average 10.1 percent in 2005 from an anticipated 10.2 percent this year, the institutes predicted.
As for the state of German public finances, the institutes forecast a renewed breach of the terms of the European Stability and Growth Pact by Germany next year.
The stability pact stipulates that eurozone countries are not allowed to run up deficits in excess of 3.0 percent of gross domestic product (GDP).
However, the German deficit ratio already exceeded that limit in 2002 and 2003 and is set to reach 3.8 percent again this year.
The institutes forecast a deficit ratio of 3.5 percent for 2005 and urged the goverment to cut spending more aggressively next year in order to bring the deficit back within EU limits.
With regard to the outlook for monetary policy, the institutes urged the European Central Bank to hold its fire on interest rates in face of the runaway price of oil and slowing global growth.
"In view of the economic risks connected with oil prices and slowing global growth, the ECB should wait and see (on rates) for the time being," they wrote. "Only if it materalises in the spring of 2005 that the eurozone recovery has strengthened will it signal by means of a rate hike that it is keeping its eye on price stability," the institutes said.
At current interest rates levels, "monetary policy continues to stimulate the economy in the euro area and in Germany. The ECB should basically hold this course ... regardless of the impact of the oil price on inflation rates, as long as there are no signs of second-round effects from high energy prices," the institutes said.
The institutes predicted the next upward move in interest rates by the ECB would be an increase of just a quarter of a percentage point.
The guardian of the euro has held its central "refi" refinancing rate steady at 2.0 percent for the past 16 months and has so far not given any indication it plans to raise rates any time soon.