German DIW institute cuts 2013 GDP f'cast to 1.6 pct

BERLIN, Oct 2 (Reuters) - Germany's economy will grow 0.9 percent this year and 1.6 percent next year, the DIW economic research institute said on Tuesday, reducing its forecasts as a weaker global outlook and the euro zone's debt crisis weigh on the region's powerhouse.

The German Institute for Economic Research (DIW), which had forecast 1.0 percent and 1.9 percent growth rates for 2012 and 2013 respectively in July, said the crisis remained the biggest threat to the German economy.

"The headwinds will hold up for the time being, production and orders are weakening and the situation on the labour market has also darkened somewhat," said DIW chief economist Ferdinand Fichtner.

"The biggest risk for the export-dependent German economy remains the euro crisis, which looks less likely to escalate given the European Central Bank's intervention, but which could do so nonetheless"

Germany's economy recovered swiftly from the 2008/09 financial crisis and has proven resilient throughout much of the euro zone's three-year-old crisis. But growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first, and signs of weakness have increased in past months.

Fichtner said that while the outlook was weaker for emerging markets, some such as China and Brasil were seeking to stimulate their economies with expansive monetary policy and fiscal stimulus. Economic revival there from the start of next year should lift German exports too, he said.

The DIW said the German companies were not using cheap financing to their advantage as uncertainty over the euro crisis was prompting them instead to hold back on investments. These would likely also pick up from 2013.

(Reporting by Sarah Marsh)

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