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Significant cooling of the economy – Political risks high

Summary:
Press release with Key Forecast Figures (PDF, 238 KB) Germany’s leading economics research institutes have revised their forecasts for economic growth in 2019 significantly downward. They expect Germany’s gross domestic product to increase by 0.8%. This is more than one percentage point less than in autumn 2018, when the forecast was still for 1.9% growth. In contrast, the institutes confirm their previous forecast for the year 2020: gross domestic product is expected to increase by 1.8%. These are the results of the Joint Economic Forecast for spring 2019, which will be presented in Berlin on Thursday. “The long-term upswing of the German economy has come to an end,” says Oliver Holtemöller, head of the

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Germany’s leading economics research institutes have revised their forecasts for economic growth in 2019 significantly downward. They expect Germany’s gross domestic product to increase by 0.8%. This is more than one percentage point less than in autumn 2018, when the forecast was still for 1.9% growth. In contrast, the institutes confirm their previous forecast for the year 2020: gross domestic product is expected to increase by 1.8%. These are the results of the Joint Economic Forecast for spring 2019, which will be presented in Berlin on Thursday.

“The long-term upswing of the German economy has come to an end,” says Oliver Holtemöller, head of the Department of Macroeco¬nomics and Vice President of the Halle Institute for Economic Research (IWH), which coordinated this spring’s report. The report concludes that political risks have further clouded the global economic environment. However, the economic slump in the second half of 2018 is due primarily to obstacles to production in industry. “We still consider the chance of a pronounced recession to be slight,” Holtemöller adds. The forecast was completed as of March 29, 2019, when it still seemed that a hard Brexit would be avoided. This has now become less likely, but is still possible. However, if a no-deal Brexit occurs, economic growth this year and the next is likely to be significantly lower than indicated in this forecast.

Significant cooling of the economy –  Political risks high

Employment growth is expected to lose momentum, but the number of people in employment will rise from 45.3 million this year to 45.5 million next year. Over the same period, the number of registered unemployed people will de¬cline from 2.2 million to 2.1 million. This will bring the unemployment rate down from 4.8% to 4.6%. Consumer price inflation is projected to rise from an average of 1.5% this year to 1.8% in 2020. Domestic inflation will increase. The institutes expect the government to see significant fiscal surpluses over the entire forecast period, although they will shrink considerably: while last year’s surplus reached a record high of 58 billion euros, this year’s is likely to be down to 41.8 billion euros and next year’s, 35.6 billion euros.

In view of the economic cooldown, fiscal policy should let the automatic stabilisers do their job. It should not seek to consciously save for the sake of Germany’s “black zero”; after all, both the German debt brake and the European fiscal policy framework explicitly permit cyclical deficits.

The risks for the German and the global economy have grown since autumn 2018. At the international level, there are threats posed by the trade dispute between the US and China and by the still unresolved Brexit process. At the national level, the economic situation is weighed down by supply bottlenecks, a shortage of skilled workers, and difficulties in the automotive industry.

The Joint Economic Forecast was prepared by DIW (Berlin), the ifo Institute (Munich), IfW (Kiel), IWH (Halle), and RWI (Essen).

About the Joint Economic Forecast

The Joint Economic Forecast is published twice a year on behalf of the German Federal Ministry for Economic Affairs and Energy. The following institutes participated in the autumn report 2018:

  • German Institute for Economic Research (DIW Berlin)
  • ifo Institute - Leibniz Institute for Economic Research at the University of Munich in cooperation with the Swiss Institute for Business Cycle Research (KOF) at ETH Zurich
  • Institute for the World Economy Kiel (IfW)
  • Leibniz Institute for Economic Research Halle (IWH)
  • RWI – Leibniz Institute for Economic Research in cooperation with the Institute for Advanced Studies Vienna

Scientific contacts

Dr. Claus Michelsen
German Institute for Economic Research (DIW Berlin)
Tel +49 30 89789 458
[email protected]

Professor Dr. Timo Wollmershäuser
ifo Institute – Leibniz Institute for Economic Research at the University of Munich
Tel +49 89 9224 1406
[email protected]

Professor Dr. Stefan Kooths
Institute for the World Economy Kiel (IfW Kiel)
Tel +49 341 8814 579 or +49 30 2067 9664
[email protected]

Professor Dr. Oliver Holtemöller
Leibniz Institute for Economic Research Halle (IWH)
Tel +49 345 7753 800
[email protected]

Professor Dr. Roland Döhrn
RWI – Leibniz Institute for Economic Research
Tel +49 201 8149 262
[email protected]

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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