German Economy Still Booming – But the Air is Getting Thinner
- KOF Bulletin
- Joint Economic Forecast
The global economy is buzzing. Nevertheless, according to the institutes involved in the Joint Economic Forecast for Germany, which also include KOF, growth may slow down in the coming year. The German economy is set to continue its boom phase.
The global economic upswing continues. Production capacity utilisation in the big economies is still rising. However, expansion rates have now passed their peak. On the one hand, capacity limits are taking effect in a growing number of industries and countries, on the other, corporate sentiment has turned down noticeably of late.
As yet, inflation is rather low in the great majority of all countries examined by the joint economic forecast institutes. Nevertheless, in the face of increasing shortages on the labour market, wage inflation may slowly gain momentum in many countries. Pressure on wages and additional demand for consumer goods are likely to result in a gradual rise in inflation rates. Financial policy is providing additional impulses, while expansive monetary policies are expected to gradually ease off.
Global trade still expanding, albeit at a slower pace
The institutes involved in the Joint Economic Forecast anticipate global production to expand by a substantial 3.4% – similar to last year. In the course of the coming year, global dynamics are set to level off. Aside from representing a step towards further growth-inhibiting protectionism, current trade policy disputes between the USA and other countries are also associated with a downward risk in terms of the economic forecast – especially if the conflict spreads.
German economy loses momentum at high speed
The German economy is set to continue its boom phase, although the outlook is slightly more restrained. Available macroeconomic capacities are dwindling and the economy will lose momentum. The tempo will nevertheless remain high as the global economic upswing will continue to stimulate exports and the domestic economy remains lively given the extraordinarily favourable labour market situation.
On top of this, the new German government is likely to implement the fiscal measures established under the coalition agreement to stimulate demand. Economic output is set to expand by 2.2% (annual average) this year and 2.0% in the coming year (see T 1). Compared with their autumn 2017 forecast, the institutes have raised their GDP growth projection by 0.2 percentage points for both years. Employment should continue to expand noticeably, although employment growth will level off due to shortages on the labour market. At the same time, gross wages are likely to increase noticeably. The inflation rate will go up gradually, from 1.7% this year to 1.9% in the coming year.
Joint Economic Forecast
The semi-annual Joint Economic Forecast for Germany is prepared by the German Institute for Economic Research (DIW) in Berlin in collaboration with the Austrian Institute of Economic Research, the ifo Institute in Munich in cooperation with the KOF Swiss Economic Institute at ETH Zurich, the Kiel Institute for the World Economy (IfW), the Halle Institute for Economic Research (IWH) and the Leibniz-Institute for Economic Research (RWI) in Essen in cooperation with the Institute for Advanced Studies in Vienna. Since 2007, KOF has been taking part in the Joint Economic Forecast as junior partner of the ifo Institute. KOF primarily represents the consortium in the field of international and European economic development.
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