German growth outlook remains positive amid shadow of trade war: study

BY  | FROM  | 2018-03-22 20:39

The German economy will maintain its current momentum despite the growing risk of a global trade war, a study published on Wednesday by the Ifo Institute for Economic Research (Ifo) predicts.

According to the Munich-based institute, German gross domestic product (GDP) will expand by an annual rate of 2.6 percent in 2018. The figure would mark the fastest pace of growth measured in Germany since 2011. For 2019, Ifo still predicts a slightly lower GDP growth rate of 2.1 percent.

"We hereby confirm the figures from our December forecast," a statement by Ifo economic expert Timo Wollmershaeuser read. During the ongoing and next year, the German government was consequently likely to achieve a budget surplus of more than 38 billion euros (46.65 billion U.S. dollars), while the unemployment rate would fall further from 5.7 percent (national as opposed to Eurostat methodology, note) in 2017 to 4.8 percent in 2019.

Ifo expects further growth in 2018 and 2019 to rely more on an expansion of public investment than private consumption. "The economic policy of the federal government will have a stimulating effect due to a widening of redistributive measures and new spending," Wollmershaeuser explained.

Additionally, the economic expert remained upbeat that exports would continue to make a significant contribution to national income. "Massive income tax reductions" in the U.S. and a "strong eurozone recovery" in particular promised to be reflected in increased demand for German goods and services.

Nevertheless, the study also highlighted a number of risks which could still lead to a reversal of Germany's current growth trajectory. Wollmershaeuser noted that debate over the imposition of tariffs in transatlantic trade and appreciation in the value of the euro were "weighing on the sentiment of domestic entrepreneurs."

"At the same time, the coalition agreement is disappointed with regards to reforms of the German taxation system," Wollmershaeuser added. He criticized that Berlin had so far showcased no desire to follow the path of the U.S. and United Kingdom in slashing corporate taxation rates.

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