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Germany’s Economic Experts Raise Forecast Slightly

Press Release of April 19, 2018

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

Germany’s leading economic experts raised their forecasts for 2018 and 2019 slightly in their Spring Joint Economic Forecast released on Thursday in Berlin. They now expect economic growth of 2.2 percent for this year and 2.0 percent for 2019, versus 2.0 percent and 1.8 percent respectively in their autumn forecast. “The German economy is still booming, but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, ifo Head of Economic Forecasting. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”

Despite tax cuts and higher public spending, the fiscal surplus remains almost unchanged at 36.6 billion euros in 2017, 37.8 billion euros in 2018 and 34.7 billion euros in 2019 thanks to the German economy’s strong performance and as a result growing tax revenue caused by bracket creep. The number of persons in employment grew from 44.3 million in 2017 to 44.9 million in 2018 and will increase to 45.3 million euros in the year ahead. At the same time, unemployment will drop from 2.5 million to 2.3 million persons this year and 2.2 million in 2019. This will bring the unemployment rate down from 5.7 percent last year to 5.2 percent in 2018, followed by 4.8 percent in 2019.Consumer price inflation will rise to 1.9 percent by 2019. Germany’s current account surplus (goods, services and current transfers) is expected to increase slightly from 262.6 billion euros in 2017 to 277.0 billion euros this year and 284.billion euros in 2019. These figures respectively represent 8.0 percent, 8.2 percent and 8.0 percent of Germany’s annual gross domestic product.

Topics: Business cycles