Economic Experts Raise Forecast for German Economy Slightly

“The German economy is still booming, but but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, Head of Economic Forecasting at the leading ifo Institute. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”

Despite tax cuts and higher public spending, the German fiscal surplus remains almost unchanged at 36.6 billion euros in 2017, 37.8 billion euros in 2018 and 34.7 billion euros in 2019 thanks to the German economy’s strong performance and as a result growing tax revenue caused by bracket creep. The number of persons in employment grew from 44.3 million in 2017 to 44.9 million in 2018 and will increase to 45.3 million euros in the year ahead. At the same time, unemployment will drop from 2.5 million to 2.3 million persons this year and 2.2 million in 2019. This will bring the unemployment rate down from 5.7 per cent last year to 5.2 per cent in 2018, followed by 4.8 per cent in 2019.Consumer price inflation will rise to 1.9 per cent by 2019. Germany’s current account surplus (goods, services and current transfers) is expected to increase slightly from 262.6 billion euros in 2017 to 277.0 billion euros this year and 284.5 billion euros in 2019. These figures respectively represent 8.0 per cent, 8.2 per cent and 8.0 per cent of Germany’s annual gross domestic product.

The Joint Economic Forecast is prepared by the DIW (Berlin) in cooperation with the Austrian Institute of Economic Research (WIFO), the ifo Institute (Munich) in cooperation with the KOF Swiss Economic Institute – ETH Zurich, the IfW (Kiel), the IWH (Halle) and the RWI (Essen) in cooperation with the Institute for Advanced Studies in Vienna.