March 14, 2019 / 9:08 AM / 7 months ago

Ifo institute cuts German 2019 GDP growth forecast to 0.6 percent

BERLIN (Reuters) - Germany’s Ifo institute on Thursday slashed its 2019 growth forecast for Europe’s largest economy to 0.6 percent from 1.1 percent due to weaker foreign demand for industrial goods and increased headwinds for exporters.

A global slowdown, tariff disputes sparked by U.S. President Donald Trump’s ‘America First’ policies and the risk of a chaotic British departure from the EU could bring a decade-long expansion of Germany’s export-reliant economy to an end.

Ifo economist Timo Wollmershaeuser said that German industry — including the important car sector — would probably not contribute anything at all to overall economic growth this year.

“Global demand for German products is weak because the world economy is losing further steam,” Wollmershaeuser said.

Wollmershaeuser added, however, that a robust labour market, moderate inflation and steep wage hikes would support private consumption, which should prop up overall growth.

State spending will give the economy an additional boost as government expenditure is expected to rise by 2.6 percent this year from 1.0 percent in the previous year, he said.

For 2020, the Ifo institutes expect the economy to rebound with a growth rate of 1.8 percent.

The DIW institute on Thursday slashed its 2019 growth forecast for Germany to 1.0 percent from 1.8 percent previously and confirmed its 2020 estimate of 1.8 percent.

The German economy had a subdued start to 2019 and probably grew only moderately in the first quarter, the Economy Ministry said in its monthly report on Thursday.

“The economy has got into turbulent waters due to higher risks and uncertainties in the external environment,” the ministry said, warning that the industrial sector was likely to remain weak due to sluggish demand from abroad.

The German government cut its 2019 growth forecast to 1.0 percent in January and will update its estimates in April.

The cloudy outlook chimes with a survey from the DIHK Chambers of Industry and Commerce on Thursday that showed every second company doing business abroad is facing problems such as higher tariffs, restrictions and other trade barriers.

“The headwinds from abroad for German businesses are getting stronger,” said DIHK President Eric Schweitzer, pointing to the uncertainty over Brexit as well as Trump’s tariffs and sanctions policies.

Only 15 percent of German companies expect an improvement in their foreign business, the DIHK survey among 2,100 firms showed.

Reporting by Michael Nienaber; Editing by Catherine Evans

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