Think-Tank Cuts German Growth Forecast

The DIW economic institute has slashed its growth forecast for Germany due to an unexpectedly weak start to 2018 and risks from abroad including concerns about Italy’s new government and the escalating trade conflict with the United States.

Italy’s coalition government comprises anti-establishment parties with a brief to shake up EU institutions while US President Donald Trump has threatened allies with hefty tariffs on car imports in addition to unilaterally imposed metal duties, Reuters reported.

The Berlin-based DIW think-tank said it cut its gross domestic product growth forecast for Europe’s largest economy by 0.5 percentage points to 1.9% this year, and by 0.2 percentage points to 1.7% in 2019.

“Uncertainty arises mainly from growing concerns about some European countries, mainly Italy, and the possibility of an escalating trade conflict between the United States and the rest of the world,” DIW said.

The uncertain business outlook is causing companies worldwide to scale back investments and this is putting the brakes on German export growth, DIW added.

“The situation in Italy is causing the fear of a resurgence of the eurozone debt crisis,” DIW head Marcel Fratzscher said. “It’s a wake-up call for politicians in Europe, especially for the German government, to finally lean into the reform debate for a more crisis-prone Europe.

“The proposals and options are on the table, now it’s time for action. European nations have to put up a united front, also against Trump and his protectionism,” Fratzscher said.

The economy ministry said in its monthly report on Wednesday that Germany’s economic upswing was losing some momentum, with the growth outlook clouded by the festering trade dispute and risks linked to Italy’s new coalition government.

“This is expressing itself in the real economy through a wait-and-see approach, especially when it comes to investments,” the ministry added.

The economic upswing is nevertheless set to continue because private consumption remains bullish and exports are still robust due to Germany’s highly diversified portfolio of manufacturing products and export markets, the ministry added.

Economy Minister Peter Altmaier said on Tuesday the government was sticking to its most recent growth forecasts of 2.3% for this year and 2.1% for 2019 despite increased trade tensions that surfaced at the Group of Seven summit at weekend in Canada.