BERLIN The German economy could face headwinds from a protectionist U.S. trade policy and excessive state interference in China, the BDI industry association said on Tuesday, projecting a 1.5 percent expansion in Europe's biggest economy this year.
Economists have been urging the German government to pursue reforms and increase investment in digitalisation, research and development, infrastructure and education to lay the foundations for a new economic cycle - one less reliant on exports.
"In view of global political uncertainty that particularly threatens our national economy, future growth is anything but self-evident," BDI President Dieter Kempf said.
"The key is proactive state investments in our roads, energy and digital networks as well as in education," Kempf said.
The BDI, which has forecast growth of 1.9 percent for 2016, said it expected exports to rise 2-3 percent this year and up to half a million people to join the work force.
The Federal Statistics Office will release growth figures for 2016 on Thursday. The government expects the economy to have grown by 1.8 percent last year, the strongest expansion in half a decade.
Looking ahead, German exporters, whose sector remains key to the economy despite a weakening in recent years, fear that a protectionist trade policy under Trump would hurt their business.
Kempf warned against any attempt to seal off the United States and limit free trade.
"This would damage the whole global economy and in particular the export-oriented German economy," he said.
State interference in China was also a worry for German firms doing business there, he said.
Most economists expect economic growth to slow this year as the three main economic drivers - construction, consumption and government spending - lose some momentum.
These three sectors have benefited from low interest rates, which are unlikely to fall further. This, coupled with rising inflation and expectations of a stagnating unemployment rate, may dampen growth.
Nevertheless, economists expect growth to slow only gradually in coming years.
The construction sector is forecast to continue its solid performance, helped by the housing shortages and low interest rates that have encouraged more people to buy homes instead of renting.
Construction industry associations said on Tuesday they expected sales to rise by 5 percent this year and hit a 20-year record, following growth of 5.8 percent in 2016.
"The German construction industry is heading into 2017 with great confidence," said the leaders of the Deutsche Bauindustrie and Deutsche Baugewerbe in a statement. "As seen last year, the driver will be residential construction with growth of 7 percent."
They said the main risk to the sector was a looming shortage of skilled workers.
(Writing by Joseph Nasr and Madeline Chambers; Editing by Hugh Lawson)