Joint Economic Forecast Spring 2017: Upturn in Germany strengthens in spite of global economic risks

Press Release of April 12, 2017

Press release of the project group "Gemeinschaftsdiagnose": German Institute for Economic Research (DIW Berlin), Halle Institute for Economic Research (IWH), ifo Institute, Kiel Institute for the World Economy (IfW), RWI - Leibniz Institute for Economic Research

The German economy is already in the fifth year of a moderate upturn. Ac­cording to the Gemeinschaftsdiagnose (GD, joint economic forecast) that was prepared by Germany’s five leading economic research institutes on behalf of the Federal Government, capacity utilization is gradually increasing, and aggregate production capacities are now likely to have slightly exceeded their normal utilisation levels. However, cyclical dynamics remain low compared to earlier periods of recoveries, as consumption expenditures, which do not exhibit strong fluctuations, have been the main driving force so far. In addi­tion, net migration increases potential output, counteracting a stronger ca­pacity tightening. “Gross domestic product (GDP) is expected to expand by 1.5 percent (1.8 percent adjusted for calendar effects) and 1.8 percent in the next year. Unemployment is expected to fall to 6.1 percent in 2016, to 5.7 percent in 2017 and 5.4 percent in 2018”, says Oliver Holtemöller, Head of the Department Macro­economics and vice president of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association. Inflation is expected to increase markedly over the forecast horizon. After an increase in consumer prices of only 0.5 percent in 2016, the inflation rate is expected to rise to 1.8 percent in 2017 and 1.7 percent in 2018. The public budget surplus will reduce only modestly. Public finances are slightly stimulating economic activity in the current year and are cyclically neutral in the year ahead.