Stronger year-end Ger­man econ­omy will push into 2017

Kuwait Times - - BUSINESS -

BER­LIN: The Ger­man econ­omy will re­bound more strongly than pre­vi­ously ex­pected in the fourth quar­ter and this growth mo­men­tum will carry through into 2017, one of Ger­many’s lead­ing fore­cast­ing groups said. The pro­jec­tion, by the Ifo In­sti­tute, comes af­ter the quar­terly growth rate halved to 0.2 per­cent in the third quar­ter be­cause ex­ports to ma­jor trad­ing part­ners weak­ened.

A re­cent jump in in­dus­trial or­ders and up­beat sen­ti­ment sur­veys have, how­ever, in­di­cated a re­bound in the last three months of the year. “All signs point to a fourth quar­ter that is stronger than had been ex­pected un­til now,” Ifo Pres­i­dent Clemens Fuest said in a state­ment. “We’ll take this im­pe­tus into the new year.” The Ifo in­sti­tute slightly raised its growth fore­casts for the Ger­man econ­omy to 1.5 per­cent in 2017 and 1.7 per­cent in 2018. That was an ex­tra 0.1 per­cent­age points for each year.

This is slightly higher than the pre­dic­tions of an­a­lysts polled by Reuters. For this year, Ifo con­firmed its growth pre­dic­tion of 1.9 per­cent, which would be the strong­est in five years, pro­pelled by soar­ing pri­vate con­sump­tion and higher state spend­ing. “The change of growth pace from 2016 to 2017 is only due to a lower num­ber of work­days,” Fuest said. Ger­many’s strong do­mes­tic de­mand is helped by record-high em­ploy­ment, ris­ing real wages and low bor­row­ing costs.

Ifo ex­pects the Ger­man labour mar­ket to ex­pand fur­ther, with em­ploy­ment lev­els reach­ing new record highs at 43.8 mil­lion in 2017 and 44.2 mil­lion in 2018 af­ter 43.5 mil­lion this year. The in­sti­tute pre­dicts un­em­ploy­ment to re­main sta­ble at 2.7 mil­lion de­spite the in­flux of more than one mil­lion mi­grants since the be­gin­ning of 2015, mean­ing the so­cial costs for the state could turn out to be lower than orig­i­nally feared. Ifo said in­fla­tion would bounce back in Ger­many as past oil price drops are be­ing knocked out of the base fig­ures. It ex­pects the na­tional in­fla­tion rate to climb to 1.5 per­cent in 2017 and 1.7 per­cent in 2018 af­ter 0.5 per­cent this year.

Fuest said the Ger­man in­fla­tion rate was close to the Euro­pean Cen­tral Bank’s pol­icy target of al­most 2 per­cent. “Since a sim­i­lar de­vel­op­ment is also ex­pected for the euro zone, the ECB should speed up the exit from the bond­buy­ing pro­gram,” Fuest said. — Reuters

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