Economic forecast in germany drastically lowered

Economic forecast in germany drastically lowered

Although the German economy is practically already in recession, growth of 0.8% is still forecast – if there is no hard Brexit

The five leading economic research institutes have drastically lowered their economic forecasts for the current year. Whereas they had previously expected the German economy to grow by 1.9% this year, the new forecast is for growth of just 0.8%.

The institutes are thus in line with the forecast of the five economic experts, who had already significantly lowered their forecast to 0.8% in March. "The long-lasting upswing of the German economy has come to an end", according to the experts’ spring report, as the economic situation in "Clearly cooled off" have.

The global economic environment had deteriorated further due to political risks. The risks to the German and global economy have worsened compared with fall 2018. At the international level, risks lay in the trade dispute between the USA and China and the Brexit process, which remains unclear. In Germany, a shortage of skilled workers, supply bottlenecks and difficulties in the automotive industry were holding back the economy.

"However, we consider the risk of a full-blown recession to be low so far", explained Oliver Holtemoller, Head of the Macroeconomics Department and Deputy President of the host Leibniz Institute for Economic Research in Halle (IWH), at the presentation of the forecast.

This is somewhat surprising, given that Germany is already in recession and has officially only managed to avoid it because illegal transactions have also been included in the gross national product for some time now, as has been explained here.

In fact, even the five research institutes do not dare to exclude a deeper recession. A hard exit of Great Britain from the EU has been a possibility since the conclusion of the forecast at the end of March, they said "become less likely, but not yet ruled out", write the researchers.

If there is a no-deal Brexit, economic growth this year and next year may be significantly lower than shown in this forecast.

Spring report of the German economic research institutes

The institutes have not calculated the case. They lack comparisons for this, but fear a significant slowdown for Germany as well, due to considerable restrictions on cross-border trade in goods if there is no Brexit agreement.

Some observers have long spoken of a severe industrial recession in Germany anyway, given the country’s dependence on exports, and the figures are only comparable to the recession in the 2009 financial crisis.

Survey data among purchasing managers indicate that the situation deteriorated further in March. The manufacturing sector in the monetary union is in the sharpest downturn "the sharpest downturn since the euro crisis in 2012", says Chris Williamson, chief economist of the data provider IHS Markit. He conducted the latest purchasing manager survey. January’s recovery effect proved short-lived, it is noted.

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