The German government has cut its official growth forecast, confirming the sluggish state of its economy.

The government now expects the economy to grow by just 0.5% this year, down from the previous estimate of 0.75%.

And it says the economy will expand by 1.5% in 2003 instead of 2.5%.

The revision had been widely expected and came on the same day that the International Monetary Fund (IMF) cut its growth forecast for Germany.

The IMF also warned that the German government should not try to cut its budget deficit too quickly as this could damage any economic recovery.

Weaker growth

In its annual review of the German economy, the IMF held its growth prediction for this year at 0.5%, but trimmed its 2003 forecast to 1.75% from 2%.

"In 2003, GDP growth is expected to pick up, but is likely to remain weaker than previously projected and subject to considerable risks," the IMF said.

"These include global uncertainties and a complex set of domestic factors."

One of the factors is the German Government's budget deficit.

Germany has already admitted that its deficit for this year will be above the 3% of GDP level ceiling set by EU's Stability and Growth Pact.

The IMF said it expected a German budget deficit of 3.5% of GDP this year, but that the government would try to cut it to 2.75% in 2003.

However, the IMF said a smaller cut might be more suitable given the economy's weakness.