German Economy: A Recession Is Not Automatically a Crisis: DIW Economic Outlook

Abstract

The slowdown in the global economy and the uncertainties caused by Brexit have affected the export-oriented German economy, which is expected to grow by only 0.5 percent this year. However, the German economy has not slid into a crisis due to marked fiscal policy stimuli and favorable developments on the labor market. Private consumption remains a mainstay of the economy; in addition, there is moderate inflation, which will barely dampen purchasing power over the next two years. Together with slightly stronger foreign demand, these factors will ensure that the German economy recovers somewhat over next year and the year thereafter. The economy is likely to grow by 1.4 percent in 2020 and 2021 as long as the serious political risks do not materialize. A no-deal Brexit, for example, would reduce growth in Germany by 0.4 percent in 2020.