Bundesbank lifts German growth outlook for 2016, 2017

Berlin / AFP

Europe’s largest economy Germany is “on a sound upward path” for faster-than-expected growth in 2016 and 2017, its central bank said, but remains at risk from Donald Trump and Brexit.
Germany’s “main driver is buoyant domestic demand, which is being bolstered by the favourable situation in the labour market and by rising household income,” Bundesbank president Jens Weidmann said in a statement accompanying the semi-annual report.
The economy should expand by 1.8 percent in both 2016 and 2017, the bank’s forecasters predict, upping their previous forecasts of 1.7 percent growth this year and 1.4 percent next year.
But they warned that a shrinking pool of people in employment will sap domestic consumption in the following years, as the issue of Germany’s ageing population continues to bite.
Increased energy prices in future will also cut the amount consumers have in their pockets to spend.
Those effects won’t be fully balanced out by an expected uptick in foreign trade as the global economy improves, meaning German growth will slow to 1.6 percent in 2018 and 1.5 percent in 2019, the Bundesbank predicts.
Rising labour and energy costs will begin to drive inflation higher in 2017, the experts said.
As measured by the Harmonised Index of Consumer Prices, inflation should rise from 0.3 percent this year to 1.4 percent in 2017, before reaching 1.7 percent in 2018 and 1.9 percent in 2019, according to the forecast — “somewhat higher than the average in the rest of the euro area”.
Looking beyond Germany to the wider world, the economists warn that “risks are tilted to the downside” in the years ahead, with potential danger from a slowdown in China, Britain’s exit from the European Union and uncertain economic policy under US President-elect Donald Trump.
“The potential shift in US economic policy represents an additional external risk,” the experts said, although they noted that an expected fiscal stimulus under Trump could positively impact global growth.