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Economic research institutes slash Germany's GDP growth forecast to 0.5 percent for 2019

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Christian Fernsby ▼ | October 3, 2019
Germany's five leading economic research institutes have jointly slashed their economic forecasts "significantly downwards" for the country.
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The German Institute for Economic Research (DIW), the ifo Institute for Economic Research, the Kiel Institute for the World Economy (IfW), the Halle Institute for Economic Research (IWH) and the Essen Institute for Economic Research (RWI) now expect Germany's gross domestic product (GDP) to increase by 0.5 percent only in 2019. Back in spring, the German institutes had still assumed an increase of 0.8 percent.

Topics: German GDP

According to the joint forecast, the reasons for the poor performance of Germany's economy include the declining global demand for capital goods, political uncertainty and structural changes in the automotive industry.

"German industry is in a recession," said Claus Michelsen, head of the Forecasting and Economic Policy Department at the DIW.

The "high degree" of political uncertainties worldwide dampens companies' investments, which has an impact on Germany's foreign trade, the economic experts noted.

"Risks arising from an escalation of the trade war are particularly high. But a disorderly Brexit would also have costs," Michelsen said. In case of a hard Brexit, Germany's GDP would be 0.4 percent lower next year than with an orderly deal.

For 2020, the German economic institutes lowered their GDP growth forecast from 1.8 percent to 1.1. percent.

The Federation of German Industries (BDI) came to a similar conclusion. "We do not expect a noticeable recovery next year. In fact, the risk of recession is increasing, especially in the U.S., the United Kingdom and Germany. Global trade and investment activities are going through a serious phase of weakness," said BDI Director General Joachim Lang.

The BDI does not share the "optimism of the institutes for the coming year." Lang warned that "in the event of a Brexit without an agreement, growth threatens to go towards zero."

According to the five German institutes, changes in vehicle construction also pose risks for Germany's important automotive market. The transition to new propulsion technologies could reduce purchases of cars with internal combustion engines.

Meanwhile, employment growth in Germany "is losing momentum as a result of the economic slowdown," the research institutes noted. The German industry has "even cut jobs recently." On the other hand, service providers and the construction industry are hiring, which would lead to 380,000 new jobs this year.

"The fact that the economy is expanding at all is due primarily to the continuing positive spending mood of private households, which is being buoyed by good wage agreements, tax breaks, and the expansion of government transfers," Michelsen commented.