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Business

German growth revised up

September 29, 2016

Thanks to a stable job market and solid consumption, the upswing in Europe's biggest economy is set to continue over the next two years, says a joint economic forecast by leading economic think tanks In Europe.

https://p.dw.com/p/2Qj41
Herbstgutachten
Image: picture-alliance/dpa/K. Nietfeld

In their joint economic forecast released on Thursday, five of Europe's leading economic research institutes raised the expected growth figure for Germany's gross domestic product (GDP) to 1.9 percent this year - an upward revision from 1.6 percent growth they had calculated in an earlier forecast released in April.

The institutes also expect GDP growth for 2017 and 2018 in Europe's biggest economy to come in higher than originally estimated in April - increasing by 1.4 percent and 1.6 percent respectively. Germany was currently experiencing "a moderate upswing" supported by stable employment and solid consumption, the report said.

"The job market is still in good shape and continues to support private spending, while public spending has been boosted by refugee-related expenditure. This means that domestic activity overall is very strong," said Ferdinand Fichtner from the German Institute for Economic Research (DIW) in Berlin.

Growth factors

In 2017, the number of registered unemployed people would rise somewhat, the think tanks forecast, but the unemployment rate should remain at its historical low of 6.1 percent.

They expect job creation to continue, with companies adding a further half a million jobs to their payrolls in the coming years. But contrary to previous economic upswings, industry's employment contribution would be "below average," they said. On the other hand, investment - which has been subdued for a long time - as well as exports are expected to pick up over the course of the year.

The institutes attribute the fact that GDP growth will be lower in 2017 than in 2016 mainly to the lower number of working days in the coming year.

Social and geopolitical risks

However, the researchers also see risks that might harm the upswing in the German economy, among them a tendency toward protectionist economic policies as a result of mounting social problems.

"In various parts of the world, political and social movements are seeking to unravel the integration of the global economy," DIW's Fichtner said. Britain's decision to leave the EU, for example, could hit the German economy, he added, if the resulting uncertainty about the future relations between the EU and the UK would affect business decisions.

Moreover, the institutes see skepticism toward global economic integration growing in other parts of the world too, and starting to influence trade and economic policies to the detriment of the German economy.

An export nation against free trade?

The twice-a-year joint economic forecast is a project organized by the German Institute for Economic Research (DIW). Its partners are the Austrian Institute of Economic Research (WIFO), the Ifo Institute in Munich, Leibniz Institute of Economic Research at the University of Munich, the KOF Swiss Economic Institute, ETH Zürich, the RWI institute in cooperation with the Institute for Advanced Studies in Vienna as well as the IWH in Halle and the Kiel Institute for the World Economy.

uhe/kd (dpa, Reuters, AFP)