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Germany: ifo Institute cuts growth forecast for 2019 to 0.6 percent

Summary:
The ifo Institute has cut its growth forecast for 2019 from 1.1 percent to 0.6 percent, but raised it for 2020 from 1.6 to 1.8 percent. "The current production difficulties in German manufacturing are likely to be overcome only gradually. The industry will largely fail to act as an economic engine in 2019. Global demand for German products is weak, as the international economy continues to lose momentum," says Timo Wollmershaeuser, Head of ifo Business Cycle Analysis and Forecasts. "But the domestic driving forces are still intact," he says. The number of people employed should continue to rise, from 44.8 million last year to 45.2 million this year and 45.5 million next year. In line with the weakening of the economy, the pace

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The ifo Institute has cut its growth forecast for 2019 from 1.1 percent to 0.6 percent, but raised it for 2020 from 1.6 to 1.8 percent.

"The current production difficulties in German manufacturing are likely to be overcome only gradually. The industry will largely fail to act as an economic engine in 2019. Global demand for German products is weak, as the international economy continues to lose momentum," says Timo Wollmershaeuser, Head of ifo Business Cycle Analysis and Forecasts. "But the domestic driving forces are still intact," he says. The number of people employed should continue to rise, from 44.8 million last year to 45.2 million this year and 45.5 million next year. In line with the weakening of the economy, the pace of employment growth is slowing. The decline in unemployment is also slowing down, from 2.34 million to 2.21 to 2.12 million people in the coming year. Accordingly, the unemployment rate will fall from 5.2 percent to 4.9 to 4.7 percent.

Wollmershaeuser added: "This year, strong wage increases, a low inflation rate, reductions in taxes and social security contributions as well as an expansion of public transfers should result in a large increase in real incomes of households. This will bolster private consumption and the construction industry." Government spending is also rising, especially in 2019, from 1.0 percent last year to 2.6 percent this year and 1.6 percent next year.

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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