December 15, 2017 / 7:49 AM / 3 months ago

German growth may ebb beyond 2018 - Bundesbank

FRANKFURT (Reuters) - Germany’s economy is facing increasing constraints so its expansion could taper off beyond next year and industrial exports, the engine of growth, could lose their competitive edge, the Bundesbank said on Friday.

Europe’s biggest economy has been the driver of a strong five-year economic run by the euro zone, thanks in part to an ultra-easy monetary policy that lowered borrowing costs to record lows, fuelling investment and household spending.

The slowdown would come just as the European Central Bank is expected to end asset purchases, curbing monetary stimulus and potentially exacerbating any slowdown after its extraordinary support has run its course.

While growth will be around 2.5 percent next year, well above previous projections, a shortage of skilled workers, rising labour costs and dwindling spare capacity could shave a full percentage point off this expansion by 2020, Germany’s central bank said in its biannual update of economic projections.

“Aggregate capacity utilisation could soon reach similarly high levels to those seen at the peak of the last economic cycle in 2007,” the central bank said. “It will therefore be increasingly difficult to maintain a rate of growth that is markedly higher than that of potential output.

“This broad-based, robust economic upswing is reaching an increasingly mature state, which means that the pace of growth is likely to slow in the medium term and converge to that of potential growth.”

From 2019 onwards, German exporters could even lose market share as their competitiveness wanes, particularly because of a rapid rise in unit labour costs, the bank said.

But for now, the boom will persist.

Export orders are high, and business sentiment and rising demand will induce increased spending on machinery and equipment.

“Private consumption also remains on a clearly upward trajectory in light of the marked rise in employment and optimistic consumer sentiment,” the Bundesbank added.

Reporting by Balazs Koranyi; Editing by Matthew Mpoke Bigg and John Stonestreet

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