An economic adviser to the German government said on Saturday he feared the financial turmoil that has rocked markets could cause a marked slowdown in German economic growth in 2007 and 2008.
Peter Bofinger, a member of the government's council of economic advisers, told Inforadio in Berlin that the turbulence would have an unfavourable impact on the dynamic growth of the world economy. Bofinger said that Germany is particularly vulnerable to a slowdown of the world economy because domestic economic growth has remained weak. He said domestic growth has stagnated over the last seven years.
Last month, Bofinger said German households' aversion to debt and firms' healthy profits meant Europe's largest economy should suffer little impact from credit market turbulence. A range of US subprime mortgages were repackaged into tradable debt instruments and given top-notch credit ratings by rating agencies, some of which later defaulted.