IW Economic Forecast Spring 2018: Companies Confident – Protectionism a Serious Threat

Other threats to economic recovery and stability in Europe are the political and economic situation in Italy and the ongoing uncertainty around the arrangements for Brexit. The global economy is currently robust, but it is also vulnerable. So far, the German economy has displayed considerable resilience due to the broadly based and continuing boom in domestic demand. As the production, investment and employment expectations of German companies show, this means that Germany will remain on track. Real GDP will grow by well over 2 per cent in 2018 and 2 per cent in 2019. However, the prospects for foreign trade continue to look good. Investment activity is stable and private consumption continues to contribute substantially to growth. Buoyant private consumption is mainly due to the ongoing rise in employment, which has also been a major factor in the public sector’s success in balancing budgets in the face of rising government spending. Despite the renewed increase in investment activity and upturn in labour force participation, potential growth in the forecast period remains well below actual economic growth. This is also reflected in the inflation rate, which remains unaffected by energy price effects at around 1 ¾ per cent. An escalation of the current trade disputes, with negative consequences for the global economy, could, however, hit the German economy hard, nearly halving growth in the coming year.