Research Institutes Cut German GDP Forecasts On Lower Exports

Research Institutes Cut German GDP Forecasts On Lower Exports

Three respected German research institutes cut their 2016 growth forecasts for Europe’s largest economy Monday, citing slowing exports as a main challenge.

However, all three also said that German growth would still be solid thanks to untrammelled spending by consumers and an expansionary fiscal stance.

Research institute DIW cut its GDP growth forecast for this year to 1.6% from 1.7%, IWH downgraded it to 1.5% from 1.6%, and RWI to 1.4% from 1.8%.

“A robust labour market, rising wages and spending on refugees are firing up consumption” while capital investment and the global economy would dampen growth, DIW said in the press release

“Domestic demand will presumably be the only pillar of growth” in Germany, RWI economy director Roland Doehrn added, predicting that private consumption, residential property construction and public consumption would all expand “strongly”.

The institutes also warned of significant global risks, especially a harder-than-expected landing by China’s economy that could have strong knock-on effects in Germany.

The new forecasts come after the statistical office reported last week that Germany’s industrial production rose unexpectedly sharply in the first month of the year, allaying some fears about an impending slowdown.

However, the latest batch of sentiment indicators showed that confidence among German businesses has deteriorated markedly over the past months, with the Ifo’s business climate index falling a third straight month in February.

ZEW and Ifo will publish March results for their respective confidence indicators Tuesday.

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