Germany slashes growth forecast

FRANKFURT

Germany’s central bank said on June 15 that it had sharply downgraded its economic growth forecast for this year but grew more optimistic for 2019, saying the present boom should continue although the danger of a trade war is rising.

“Economic growth will likely not turn out so strong as it did last year,” the Bundesbank said in a statement, predicting 2.0 percent calendar-adjusted GDP growth rather than the 2.5 percent it saw in December.

“Exports and business investment are expected to increase less strongly. And the growing lack of skilled workers is increasingly damping employment growth,” the Bundesbank noted.

Like other European economies, Germany’s expansion slowed at the start of 2018, adding 0.3 percent between January and March compared with 0.6 percent in the previous quarter.

Nevertheless, higher government spending under Chancellor Angela Merkel’s recently-installed fourth government is expected to fuel “a continuing boom,” the economists said.

For 2019 the Bundesbank upgraded its growth outlook by 0.2 percentage points, to 1.9 percent, while it raised its 2020 forecast slightly to 1.6 percent.

Trade tensions are the biggest risk for the export-heavy German economy, as the United States has imposed tariffs on steel and aluminum imports and threatened to do the same for the vital auto sector - risking a spiraling tit-for-tat escalation with the European Union.

Aggressive trade rhetoric has already sent indicators of business and investor confidence plunging.

“Downside risks from international trade outweigh the upside opportunities arising from likely more expansive fiscal policy in Germany,” the Bundesbank warned.

Meanwhile, “increasing constraints on the supply side should translate into strong wage growth and higher domestic inflation,” the economists predicted, forecasting price growth of 1.4 percent this year, 1.7 percent next year and 2.0 percent in 2020.