IW Economic Forecast: In Descent

The power struggle between the USA and China is also perceptible in these parts; exports are declining, companies invest less. The German Economic Institute thus adjusts its economic forecast downward.

This year, GDP in Germany will only increase by 1.8 percent, i.e. 0.2 percentage points less than forecasted in spring. The main reason is protectionism, which leaves its mark across the globe. In particular the “America first” policy by US president Donald Trump and the trade conflict with China are noticeable in global trade and in the German economy. 

But Trump is not the only setback for the economic cycle. Rising energy prices act as break on the economy, too: specifically manufacturing companies suffer from the additional costs. In addition, growth in many emerging economies, which during the past years were on a good path, is declining. This is slowing down exports as well as investments in Germany.   

There are some good news, however: private and public consumption persevere on a robust level and ensure that the economy won’t stagnate in the future. The labour market looks in good shape, too: employment is on the rise and the unemployment rate will drop in 2019 to an average of approx. 5 percent. 

Nevertheless, the power struggle between the USA and China will be detectable in Germany next year, too. For 2019 the German Economic Institute therefore only predicts a GDP growth of 1.4 percent. “The US and China are among Germany’s most important trading partners”, says Michael Hüther, Director of the German Economic Institute. A country, whose economic success depends in large parts on exports will of course feel the impact from trade sanctions more strongly. “At the same time, the German economy is also heavily influenced by the developments in emerging economies”, says Hüther. Slower growth in Chiane, i.e. only 6.5 percent instead of the officially reported 7 percent (with unofficial estimates forecasting still less), will have a dampening effect for the German economy.