German research institutes: Forecast for economic growth in 2019 signifcantly lower

by David Fleschen

The leading German economic research institutes have significantly lowered their forecast for economic growth in 2019. For Germany, they expect gross domestic product to increase by 0.8%. This is more than one percentage point less than in the fall of 2018, when you still expected 1.9%. On the other hand, the institutions confirm their previous forecast for the year 2020: gross domestic product is expected to increase by 1.8%. This emerges from the spring report of the joint diagnosis, which will be presented on Thursday in Berlin.

"The long-term boom of the German economy is over," says Oliver Holtemöller, head of the Department of Macroeconomics and Deputy President of the host Leibniz Institute for Economic Research Halle (IWH). Due to political risks, the global economic conditions have further deteriorated. But the economic slump in the second half of 2018 was mainly due to production barriers in the industry. "However, we consider the risk of a pronounced recession to be low," adds Holtemöller. The forecast was completed on March 29, 2019, when an avoidance of a hard Brexit seemed possible. Although this has become less likely, but not yet excluded. If there is a no-deal Brexit, economic growth this year and next is likely to be significantly lower than reported in this forecast.

Employment growth is expected to slow down. Nevertheless, the number of persons in employment is likely to continue to rise slightly, from 45.3 million this year to 45.5 million next year. At the same time, the number of unemployed is falling from 2.2 to 2.1 million people. Thus, the unemployment rate fell from 4.8% to 4.6%. Consumer price inflation is expected to increase from 1.5% this year average to 1.8% next year. Domestic inflation is increasing. For the entire forecast period, the institutes expect strong government funding surpluses, which, however, will be much smaller. While last year's historic record was 58 billion euros, it is likely to be 41.8 this year and 35.6 billion euros next year.

Fiscal policy should make the automatic stabilizers work in the face of the economic slowdown. For the sake of a "black zero", the economy should not be left behind because deficits caused by the economy are expressly permitted by the German debt brake and the European fiscal rules.

Risks for the German and global economy have increased since autumn 2018. On an international level, there are dangers in the trade dispute between the USA and China, as well as in the still unresolved Brexit case. Nationally, the shortage of skilled workers, supply bottlenecks and difficulties in the auto industry put a strain on the economy.

The joint diagnosis is prepared by the DIW in Berlin, the Ifo Institute in Munich, the IfW in Kiel, the IWH in Halle and the RWI in Essen.

Source: RWI, Photo: Fotolia

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