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Major German economic institutes significantly lower German GDP forecast

Christian Fernsby ▼ | April 5, 2019
Five leading German economic research institutes have significantly lowered their forecast for German economic growth in 2019 in a joint economic outlook presented on Thursday.
Germany mfanucturing
Europe   Germany's gross domestic product is only expected to increase by 0.8 percen
Germany's gross domestic product (GDP) is only expected to increase by 0.8 percent, a decline of more than one percentage point compared to the 2018 fall forecast of 1.9 percent.

On the other hand, the German economic research institutes confirmed their previous prediction that German GDP would increase by 1.8 percent in 2020.

"The long-term upswing of the German economy has come to an end," said Oliver Holtemoeller, vice president of the Halle Institute for Economic Research (IWH).

Nonetheless, "we so far consider the risk of a severe recession to be low," said Holtemoeller.

The German economy was now going through a cooling phase during which overall economic excess capacity was declining, the joint forecast stated.

In 2019, the German economy will probably stabilize but will not return to the high momentum of previous years. German GDP growth in the first quarter of 2019 will likely remain subdued at 0.2 percent, the joint forecast predicted.

As the year progresses, the pace of expansion is likely to be somewhat higher as industrial production picks up again.

German production in 2019 will no longer be hampered by low river levels, and the problems in the automotive industry with the conversion to the WLTP standard should soon be overcome, according to the German economic institutes.

German consumer-related service sectors will continue to support the economy as they benefit from a 3.1 percent rise in disposable income this year and a 3.3 percent rise in 2020.

The joint study highlighted, however, that international trade conflicts and the looming Brexit were contributing to economic slowdown in Germany as well as at the global level.

"The growth prospects for Germany, Europe and the world have deteriorated considerably in recent months," Axel Lindner, deputy head of the macroeconomics department at IWH told Xinhua on Thursday.

The joint forecast noted that the slowdown in global economic growth during last year should be seen more as "a normalization after the exceptionally strong upswing in 2017".

Nonetheless, it was also "a consequence of the considerable economic policy risks". Political decisions, in particular a no-deal Brexit scenario, could negatively impact international economic development and significantly lower German economic growth in 2019 and 2020.

The findings of the joint forecast were compiled by the IWH, the Ifo Institute for Economic Research, the German Institute for Economic Research (DIW), the Leibniz Institute for Economic Research (RWI) and the Kiel Institute for the World Economy (IfW).

The joint study is released twice a year, once in the spring and once in the fall. It serves as a basis for the German government's own forecasts.