FRANKFURT, July 3: The conditions are in place for the German economy, Europe’s biggest, to recover this year — and lead the eurozone back to growth — unless the crisis intensifies further, the IMF warned on Tuesday.

“Several conditions are in place in Germany for a domestic demand-led recovery following the downturn at the end-2011,” the International Monetary Fund wrote in a new report on Germany.

Germany’s economic performance throughout the crisis so far “has been remarkable, despite a difficult environment,” the head of the IMF mission to Germany, Subir Lall, told on a telephone conference call.

Germany expanded strongly for most of last year, but growth shuddered to a halt in the final quarter, when it contracted by 0.2 per cent.

Nevertheless, the dip was only short-lived and gross domestic product (GDP) rebounded again to expand by 0.5 per cent in the first three months of this year.

While the IMF was pencilling in much slower GDP growth of around 0.1 per cent in the second quarter, the economy would gather momentum and reach its potential for growth of around 1.25pc in the second half of the year, Lall said.

Healthy corporate and household balance sheets, higher wages, well anchored inflation expectations, and low borrowing costs would act as a boost by keeping domestic demand strong, the IMF said.

Taking 2012 as a whole, the fund said it was projecting GDP to expand by 1.0 per cent, down from 3.1pc in 2011.—AFP