The ‘Europacity’ construction site is pictured in Berlin, Germany, July 27, 2018. REUTERS/Fabrizio Bensch
November 15, 2018
BERLIN (Reuters) – The German government’s forecast for growth of 1.8 percent this year is no longer achievable after the economy contracted in the third quarter for the first time since 2015, leading economic institutes said on Thursday.
Europe’s largest economy contracted by 0.2 percent in the July-September period as global trade disputes and problems in the auto sector threw the traditional export growth engine into reverse, raising concerns that a long expansion is faltering.
“For 1.8 percent growth in the current year, economic output in the final quarter would have to increase by 1.3 percent (on the quarter). We do not expect so much ground to be made up,” said Stefan Kooths at the IFW economic institute in Kiel.
Claus Michelsen, economics chief at the DIW economic institute, agreed that the economy would need to grow by 1.3 percent in the final quarter to hit the full-year forecast.
“A rebound is indeed expected, but such a reading would really surprise me,” Michelsen said.
The Munich-based Ifo economic institute took much the same view. It expected growth of 0.4 percent in the October-December period, resulting in annual growth of some 1.5 percent.
The government has forecast 1.8 percent growth for both this year and next. Ifo economist Timo Wollmershaeuser said there would need to be a strong start to 2019, with first quarter growth of some 0.6 percent, to hit the forecast next year.
“However, such a strong start to 2019 seems rather unlikely in the context of the worsening business climate over 2018,” he said.
A spokesman for the Economy Ministry said the government would update its annual forecasts at the beginning of 2019.
The weakness in the German – and broader euro zone – economy has raised fears that the currency bloc’s five-year expansion may be coming to an end just as the European Central Bank plans to dial back stimulus.
However, Dutch ECB policymaker Klaas Knot said on Wednesday the weakness in euro zone is not significant enough for the central bank to alter its policy path, even if the outlook remains uncertain.
(Reporting by Rene Wagner; Writing by Paul Carrel; Editing by Raissa Kasolowsky)
