Germany’s leading economic forecasters slashed their growth forecasts for the country on Thursday after a sharp slump in demand from the eurozone and a series of global crises resulted in the biggest fall in exports in more than five years.
The four think tanks – Berlin’s DIW, Munich’s Ifo, Essen’s RWI, and the Halle research group in eastern Germany – scaled back their German growth forecasts for this year to 1.3 per cent, saying they expected the economy to stagnate during the three months ended September. Growth should slow to 1.2 per cent in 2015, they said.
The projections were sharply lower than the 1.9 per cent the institutes predicted for this year and the 2 per cent they forecast for next year in their last report handed to the government six months ago.
“Economic growth in Germany has cooled significantly,” the institutes said, calling on Chancellor Angela Merkel’s government to step up public spending to spur growth and investment.
“The most important task for economic policy … is to boost growth and create the right conditions for investment,” they said, adding that despite the current tough fiscal environment the government had room to stimulate the economy.
Merkel hinted she might be moving that way. “It didn’t surprise us, because the economic forecasts have become generally a bit cloudy,” she said.
“The government is preparing itself for this situation by debating how we can make additional investments possible, how we can specifically reduce bureaucracy, how we can invest in the future, particularly in the digital sector or the energy sector,” she said.
The initiatives were discussed this week by party leaders in her ruling coalition, Merkel said, but gave no details. There have been calls for Germany to accelerate the spread of high-speed internet connections and development of wind-powered electricity.
The downward revisions to growth are likely to result in Merkel’s government announcing next week that it has also lowered its economic projections.
The report’s release of followed the publication of Federal Statistics Office figures showing exports from Europe’s biggest economy plunged 5.8 per cent in August from July, when they rose 4.8 per cent.
The August fall represented the sharpest drop since January 2009, when the global financial crisis hit Germany’s industrial sector and paved the way for a recession in the country.
Analysts surveyed by dpa-AFX had predicted a 4-per-cent decline for the month.
The data adds to the gloomy picture that has emerged of the German economy this week with figures showing factory orders and production chalking up their biggest falls since early 2009.
Unemployment rose for a second consecutive month in September. The institutes predict unemployment will creep up to 6.8 per cent next year from 6.7 per cent this year.
Monthly imports were down by a surprise 1.3 per cent in August from a 1.4-per-cent slump in July, the statistics office said.
The seasonally adjusted trade balance dropped to 17.5 billion euros (22.3 billion dollars) from 22.2 billion euros in July.
The statistics office pointed to late school holidays in parts of the country as having contributed to the weaker trade figures.
But this week’s batch of downbeat numbers have also raised concerns among analysts that the economy is failing to rebound after contracting by 0.2 per cent quarter-on-quarter in the three months to June.
“The economic engine is hardly back up to speed,” said the institutes.
The International Monetary Fund warned this week that Germany and the eurozone could be teetering on the edge of a new recession after growth in the 18-member currency bloc ground to a halt in the second quarter.
The German economy has also suffered from a drop in demand from key emerging economies, with growth in China slowing just as a series of geopolitical tensions have shaken business confidence in Europe.
This includes the pro-democracy demonstrations in Hong Kong, the standoff between the West and Russia over Ukraine, the battle to head off the threat in the Middle East posed by Islamic State militants and fears about the spread of the deadly Ebola virus.
“The problem for Germany is that it faces weakness in all its major trading partners,” said ING Bank economist Carsten Brzeski.
In addition to hitting exports, economists say that the current wave of global tensions could result in companies cutting back investment plans as economic confidence wanes.
Analysts also say the sudden turn for the worse in Germany’s economic fortunes could throw into doubt Merkel’s drive for a balanced budget next year – the first since 1969.
GNA
