Sat | Apr 20, 2019

German gov’t advisers cut growth forecast for 2019

Published:Friday | March 22, 2019 | 12:16 AM

The German government’s panel of economic advisers nearly halved its German growth forecast for this year to 0.8 per cent — the latest in a long list of downgrades for Europe’s biggest economy.

In a regular update Tuesday, the panel cut its 2019 forecast from the previous 1.5 per cent, but said growth should accelerate next year to 1.7 per cent. The downgrade follows cuts in the German outlook by the European Commission and the International Monetary Fund.

The independent experts said in a statement that the lower forecast was strongly influenced by the after-effects of the economy’s weak performance at the end of last year, when it was dragged down largely by one-time factors related to new car emissions standards. German carmakers faced bottlenecks getting vehicles certified under new, more realistic emissions tests that came into force on September 1.

They also noted high risks for the future from factors such as Brexit uncertainty and global trade disputes.

Christoph Schmidt, the group’s chairman, said that “the peak of the German recovery is over. A recession, however, is not expected in view of robust domestic demand”.

The German slowdown complicates the Europe’s economic picture. While falling unemployment and rising wages are supporting consumer spending at home, the economy faces external headwinds from slowing trade and worries that US-China trade talks will fail and lead to higher tariffs, further increasing the drag from trade.

The European Central Bank took added steps to support the recovery at its last meeting on March 7, pushing back the earliest date for an interest rate increase and announcing a new round of cheap loans for banks to enable them to lend to businesses.

The bank had ended a €2.6-trillion (US$2.9-billion) bond-purchase stimulus in December after almost four years. But the worsening outlook pushed the bank to shift course towards maintaining existing stimulus rather than withdrawing it.

AP