Germany’s leading economics research institutes have revised their forecasts for economic growth in 2019 signifi­cantly downward. They expect Germany’s gross domestic product to increase by 0.8%. This is more than one percentage point less than in autumn 2018, when the forecast was still for 1.9% growth. In contrast, the institutes confirm their previous forecast for the year 2020: gross domestic product is expected to increase by 1.8%. These are the results of the Joint Economic Forecast for spring 2019, which will be presented in Berlin on Thursday.

At present, the economic situation is unusually unclear, partly due to developments in the automotive industry. Motor vehicle manufacturers are having major problems certifying their vehicles in accordance with the new exhaust and consumption standards. Certification is a prerequisite for selling their vehicles in Europe. As a result, fewer cars were sold both domestically and abroad in late summer, which led manufacturers to cut back production. This also curbed exports, investments in the vehicle fleet, and private consumption.

The production losses are expected to be made up at least in part in the winter half-year. However, this forecast is subject to unusually high uncertainty: it is quite possible that there will be no further recovery and that the growth momentum this year and next will be weaker than forecast. At present, GDP is expected to grow by 1.6 percent in 2019. Frequently voiced concerns that the German economy will overheat are thus likely finally over. In 2020, the growth rate is likely to be 1.8 percent—but it will be a good 0.4 percentage points stronger due to a higher number of working days.

Immigration from other EU countries increased Germany’s GDP growth by an average of 0.2 percentage points every year between 2011 and 2016—and for some years, such as 2015, the high point of EU immigration, by even more (0.3 percentage points). Immigrants filling open jobs increases overall economic employment, leads to additional consumer demand, and avoids bottlenecks in the labor market, which would have led to higher production costs and prices and reduced growth accordingly. These are the findings of Marius Clemens, economic researcher at the German Institute for Economic Research (DIW Berlin), and his co-author Janine Hart from the University of Potsdam, which have been published in their new study.

In contrast to the strong export performance of the previous year, the domestic economy is now primarily driving growth, with both consumption and the construction boom as contributing factors. Thus, the labor market situation remains favorable and the unemployment rate is likely to fall below the five percent mark as early as next year. Wage increases are also stronger than in previous years and enabling households to earn somewhat more money—even after deducting inflation, which is now higher.

Germany needs to reform its passenger car and fuel taxation and make a gradual increase in the diesel tax a priority. This is the conclusion reached by Uwe Kunert, a transport economist at the German Institute for Economic Research (DIW Berlin) who systematically analyzed and compared passenger car tax systems for 30 European countries (EU-28, Norway, and Switzerland) in a new study. “The comparison shows tax systems which vary greatly in their design, use many different assessment bases, and, as a result, have quite different tax burdens,” said Kunert. The total sum of taxes and duties paid when purchasing (value-added tax, registration tax and fees), maintaining (motor vehicle tax, insurance tax), and using (taxes on fuel) a new mid-size car with an annual mileage of 15,000 kilometers is between 1,200 and 2,000 euros for most of the countries surveyed. In countries with even higher tax totals, the registration tax—which does not exist in Germany—is the determining factor. Moreover, the sample calculation shows that in 26 countries, vehicles with a diesel engine have a lighter tax burden than those with a gasoline engine.

Euro area states can benefit from an interest rate increase in the U.S. in the short term, according to the findings of a current study by the German Institute for Economic Research (DIW Berlin). Thanks to the devaluation of the euro, their exports would rise to the extent that they are able to overcompensate for the negative demand effect from the U.S. This holds true for Germany in particular. In the medium term, interest rates in the euro area would follow those of the U.S., leading to a decline in growth rates there as well. “The positive effect would only be temporary. But our findings should reduce concerns that a hike in the U.S. benchmark interest rate would result in spillover effects and weaken the euro area economically,” said DIW economist Max Hanisch.

DIW Berlin president Marcel Fratzscher and co-authors Christian Franz and Alexander Kritikos analyzed the correlation between the Alternative for Germany’s (Alternative für Deutschland, AfD) performance in the last parliamentary election and seven economic and sociodemografic structural variables. Certain characteristics, such as the unemployment rate or share of non-German citizens in each electoral district, appear to barely play a role. There are positive correlations for other factors, meaning that these characteristics are especially pronounced in electoral districts where the AfD performed well. The patterns are different in the eastern and western parts of Germany.

The average electricity prices for German households have been rising almost constantly since 2007, but the rise in retail prices has affected customers to different degrees. While the basic tariffs offered by default providers—the most expensive tariffs available—increased by 50 percent by 2014, the most affordable tariffs on the market generally remained unchanged. The default providers are legally required to sell energy in the form of a default tariff to all households in their respective service areas. If consumers would switch from a default tariff to a cheaper tariff from a different provider, they would save a lot of money. In 2014, assuming average power consumption (2,800 kilowatt hours per year), it would have been possible to save an average of almost 400 euros. Nevertheless, only a relatively small number of households switch providers.

Every year in Germany, around 200 billion euros are invested in knowledge-based capital, such as research and development (R&D), software and databases, marketing and advertising, or technical design. These investments do not only increase company productivity, however. They also make investments in traditional capital goods, such as machinery or buildings, more effective. This is the conclusion reached by the German Institute for Economic Research (DIW Berlin) on the basis of a dataset containing almost two million official company records. “We found that, regardless of whether investments are made in R&D, organizational capital, or software, the positive effects on productivity are quite similar,” said Alexander Schiersch, who led the project.

Germany’s next government will most likely once again be a grand coalition. However, the results of the preliminary coalition talks between the Union parties and the SPD, which serve as a basis for the current negotiations, do not sufficiently address Germany’s need for reform, as many scientists at the German Institute for Economic Research (DIW Berlin) have concluded. “Good approaches came from the talks, but as far as Europe, tax policy, education, investments, and other areas are concerned, vision and ambition are lacking,” said DIW President Marcel Fratzscher. “The actual coalition talks should do more than just endorse the agreement that has been reached; they should be used to improve many aspects of it as well. The German economy may be doing well, but the country is in urgent need of reforms. Now is the time to initiate these reforms before another four years are lost.”

The 30 percent gender quota for supervisory boards is effective: the proportion of women on the supervisory boards of a good 100 companies in Germany which have been subject to the quota since 2016 increased to an average of 30 percent by the end of 2017, almost three percentage points more than the previous year. The German Institute for Economic Research's (DIW Berlin) Women Executives Barometer shows for the first time that numerous companies are increasing the proportion of female members serving on their supervisory board beyond the specified minimum.

Fourteen economists from France and Germany, including Marcel Fratzscher (DIW Berlin) and Clemens Fuest (ifo), are presenting a reform package aimed at making the euro area more robust and more resilient to crises as well as allow for sound public finances and stronger economic growth.

After nearly a decade of stagnation, the euro area is finally experiencing a robust economic recovery. At the same time, it remains financially vulnerable, economically and politically divided, and seemingly unable to deliver its full growth potential. A reform of the financial, fiscal, and institutional architecture of the monetary union is urgently called for.