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ifo Institute Upwardly Revises 2018/2019 Economic Forecast for Germany to 1.9 Percent

Summary:
The ifo Institute has made a slight upward revision to its forecast for the German economy for 2018 and 2019. It now expects economic growth of 1.9 percent in both years, versus its forecast of 1.8 percent in the summer. The ifo Institute forecasts growth of 1.7 percent for 2020. “One of the reasons for the upward revision is the set of figures released by the German Federal Statistical Office for the first half year of 2018,” explains Timo Wollmershaeuser, Head of Business Cycle Research and Forecasting at ifo. “Germany’s economy is currently performing strongly. Its main drivers this year and next will be private consumption, which will be boosted by rising employment and sharp increases in income,” adds Wollmershaeuser. The

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The ifo Institute has made a slight upward revision to its forecast for the German economy for 2018 and 2019.

It now expects economic growth of 1.9 percent in both years, versus its forecast of 1.8 percent in the summer. The ifo Institute forecasts growth of 1.7 percent for 2020. “One of the reasons for the upward revision is the set of figures released by the German Federal Statistical Office for the first half year of 2018,” explains Timo Wollmershaeuser, Head of Business Cycle Research and Forecasting at ifo. “Germany’s economy is currently performing strongly. Its main drivers this year and next will be private consumption, which will be boosted by rising employment and sharp increases in income,” adds Wollmershaeuser.

The number of employees will rise from 44.9 million this year to 45.4 million in 2019 and 45.8 million in 2020. At the same time, the number of unemployed persons will fall from 2.3 million to 2.2 million next year and 2.1 million in 2020. The employment rate will drop from 5.2 percent to 4.9 percent and then 4.7 percent.

According to Wollmershaeuser, “Financing conditions will remain favourable and facilitate investment, while the high rates of capacity utilisation of many companies suggest they will invest to expand their production capacities.” Thanks to the increase in government spending and a reduction in the tax burden of employees next year, the fiscal policy of the new German government will also stimulate the economy. “Lastly, Germany’s export sector will continue to benefit from a world economic climate that remains favourable, although this effect will fade gradually over the forecasting period. This forecast is based on the assumption that the truce reached in the trade war between the EU and the USA will last; and that there will be an orderly Brexit,” notes Wollmershaeuser. Compared to ifo’s summer forecast risks to the German economy arising from these assumptions have grown.

The German public sector (the federal state, Laender, municipalities and social security funds) will post a sizeable surplus of 45.5 billion euros this year, 37.2 billion in 2019 and 36.0 billion euros in 2020. Exports are expected to grow by 3.3 percent this year, 4.5 percent in 2018 and 4.2 percent in 2020. Germany’s current account surplus will continue to rise in absolute terms from 268.5 billion euros this year to 277.5 billion euro in 2019 and 288 billion euros in 2020. Its share of annual economic output, however, will remain almost stable at 7.9 percent this year, followed by 7.8 percent in 2019 and 2020 respectively.

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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