Financial news

German government slashes growth forecast

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Via Financial Times

The German government has revised down its forecast for economic growth next year from 1.5 per cent to 1 per cent, in a further sign of the slowdown that is clouding the prospects for the eurozone’s largest economy.

The economics ministry did not change its projection of 0.5 per cent growth in gross domestic product in 2019.

Germany’s economy has been roiled by global trade tensions, Brexit-related uncertainty and upheaval in the auto industry. It shrank by 0.1 per cent in the second quarter and is widely expected to suffer a further decline in the third, tipping it into recession.

But the overall picture is mixed. While the weakness in global trade is hurting German exporters, domestic demand “remains intact”, and is boosted by higher government spending, economics minister Peter Altmaier said.

“Even if the current prospects have dimmed, there is no threat of an economic crisis,” he said. Employment and incomes are rising and the construction sector is still booming.

Germany will have 45.4m people in work by the end of 2020, Mr Altmaier said, up from 44.8m in 2018.

But he added that German companies needed a “tailwind” from the government, stressing the need for tax cuts, a reduction in red tape and investment in future technologies.

The economics ministry said that although uncertainty over Brexit and international trade conflicts were clouding the picture for German exporters, the trade-related downturn would soon reach its “lowest point”. After that, foreign demand will pick up again and “Germany’s export economy will get back on its feet”, he said.

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The ministry also forecast that Germany’s current account surplus, which reflects the balance of trade between exports and imports, will fall to 6.2 per cent of GDP in 2020, down from 7.25 per cent in 2018. It said that while imports will decline next year, they would not drop as fast as exports.

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