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German GDP growth prospects weakened by global insecurity: study
Last Updated: 2018-06-14 02:28 | Xinhua
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Clouds are gathering over Germany economy as growth begins to slow, a study published on Wednesday by the German Institute for Economic Research (DIW) warns.

In the study, DIW downgraded its earlier forecasts for the rate of gross domestic product (GDP) expansion in 2018 and 2019 significantly from 2.2 percent to 1.9 percent and 2.4 percent to 1.7 percent respectively.

The Berlin-based institute hereby reacted to what it perceived as growing insecurity experienced by German firms in the face of a swelling trade conflict between Europe and the U.S. and the heightened risk of a new sovereign debt crisis in the eurozone.

"The trade conflict with the U.S. and concern over certain members of the euro-area, in particular Italy, are worrying companies and causing more restraint with regards to investment," a statement by DIW expert Ferdinand Fichtner read. As a consequence, Germany was likely to fall short of the official 2.2 percent GDP growth rate recorded in 2017 during the coming two years.

Speaking to Xinhua, Malte Rieth, expert for international markets at DIW pointed out, "Foreign trade effects already had a dampening effect on the German economy at the beginning of the year and would now also pose a major risk if the trade conflict with the U.S. escalates."

The deterioration of German growth prospects was further reinforced by an unexpectedly weak expansion of GDP measured during the first quarter of 2018. The quarterly halving of GDP to 0.3 percent was largely attributed to an unusually severe flu season and widespread industrial action.

Nevertheless, the DIW expert emphasized that Germany's "strong economic momentum" remained intact for the foreseeable future. Rising employment and wages meant that private domestic consumption would continue to support a continued, albeit weaker, expansion in the country.

According to official estimates, the number of Germans in work will rise by 800,000 to reach the record level of 45.1 million in 2018. At the same time, the number of unemployed is predicted to fall by a further 300,000 to the unprecedented low of 2.2 million. The Berlin-based institute noted that a promised increase in government transfers, for example in the form of higher child benefits, would provide an additional boost to GDP growth of around 0.3 percentage points.

DIW further expects German fiscal authorities to be able to achieve continued record budget surpluses. The excess of government revenue over expenditure was anticipated to amount to a total 49.4 billion euros in 2018 and 46.3 billion euros in 2019.

DIW president Marcel Fratzscher cautioned, however, that this windfall owed "more to luck, than to good policy" as the government still benefited from an extremely low international interest-rate environment. As a consequence, Fratzscher advised policymakers to invest available surplus funds wisely by channelling resources towards education, innovation and infrastructure.

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