Protectionist course of the US and Brexit unsettle German economy

The protectionist course of the United States and the turmoil surrounding Brexit unsettle the export-oriented German economy in the long term. Therefore, the German Economic Institute expects in its current economic forecast for 2019 only a real growth of about 0.7 percent. If the general conditions do not worsen again, an increase of 1.5 percent in 2020 is possible.

The subdued mood is also reflected in the IW Spring Survey. It is true that 35 percent of the almost 2,400 German companies surveyed assume that their production or sales will increase in the current year. Only a good 18 percent expect a decline. However, the ratio of optimists to pessimists a year ago was still 52 to 8 percent.

Foreign business in particular is losing momentum. In addition to the worsening global environment, labor costs continue to rise in Germany. Almost 19 percent of the companies therefore expect declining exports in 2019. The proportion of companies with positive export expectations is hardly higher at around 20 percent. Against this background, real German exports will only increase by 1.4 percent this year.

The weaker foreign business also influences the investment boom. Although capacity utilization is high in many companies, additional investment is required. In addition, the financing conditions are still good. Nevertheless, the companies are reluctant to invest in new equipment: the IW forecasts 2019 real growth of only 1.4 percent. A burglary is not to be feared. In addition, the slowdown in economic momentum has limited effects on the labor market - the number of people in employment will rise by a further 0.8 percent this year to more than 45 million.

Overall, the outlook for 2019 and 2020 is gloomy, but not alarming. "There is no reason to launch economic stimulus programs or similar stabilization measures on the expenditure side," says IW Director Michael Hüther. But he also emphasizes: "The state must pursue growth provision - in the form of sustainable and steady public investment as well as through stronger research funding."

Source: German Economic Institute, Photo: Fotolia