December 13, 2018 / 10:48 AM / 8 months ago

UPDATE 1-Ifo cuts German growth forecasts for this year and next

(Adds wage data, economy ministry’s monthly report)

By Rene Wagner and Michael Nienaber

BERLIN, Dec 13 (Reuters) - Germany’s Ifo institute slashed its growth forecasts for Europe’s biggest economy, saying problems affecting the car industry would last until 2019 and trade conflicts and Brexit were also hurting business.

The institute said on Thursday that it expected the German economy to expand by 1.5 percent this year, its lowest growth since 2013, and growth would slow further in 2019 to 1.1 percent.

Germany’s economy is cooling as its exporters are feeling the impact of weakening global growth.

Ifo had previously forecast German growth of 1.9 percent for both this year and 2019, down from 2.2 percent last year.

It sees growth picking up again in 2020 to 1.6 percent, slightly below its previous prediction of 1.7 percent.

German carmakers are struggling to adjust to new car registration rules, the Worldwide Harmonised Light Vehicle Test (WLTP), which became mandatory in September.

The changes have forced car manufacturers around the world including Germany’s Volkswagen to halt deliveries of some models that had yet to be re-certified.

“The period of weakness triggered by the auto industry will drag into 2019,” Ifo economist Timo Wollmershaeuser said.

In addition, business uncertainty caused by U.S. President Donald Trump’s ‘America First’ policies and disputes about higher tariffs have hit exporters.

“Trade conflicts, emerging market currency turmoil and geopolitical conflicts weigh on the global economy and have increased general uncertainty about the economic development,” the Economy Ministry said in its monthly economic report, also released on Thursday.

“The postponement of the British parliament’s vote on the Brexit agreement has not averted the risk of a disorderly exit of the United Kingdom from the European Union,” it added.

However, the German government’s plans to lower income tax and increase benefits for children will give the economy an additional boost next year, the ministry said.

“All in all, the German economy should perform well in this difficult environment,” it said.

On Tuesday the German government cut its growth forecast for this year to around 1.5 to 1.6 percent, from a previous estimate of 1.8 percent.

Domestic demand has become an important growth driver for the economy in recent years, helped by low borrowing costs, record high employment and inflation-busting pay hikes, providing a buffer against external shocks.

Nominal wages as negotiated by labour unions and companies increased by 2.8 percent this year, preliminary figures from the Federal Statistics Office showed on Thursday.

This would be the highest increase since 2014. With a predicted inflation rate of 1.9 percent in 2018, the rise would mean a real wage rise of 0.9 percent.

Germans’ average disposable income will rise by 3.3 percent to 23,779 euros ($27,058) next year, the GfK institute said, pointing to strong wage deals and the solid labour market. ($1 = 0.8788 euros) (Reporting by Rene Wagner and Michael Nienaber Editing by Susan Fenton)

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