Italy, trade wor­ries bite into Ger­man growth fore­cast

The Gulf Today - Business - - INTERNATIONAL -

BERLIN: The DIW eco­nomic in­sti­tute has slashed its growth fore­cast for Ger­many due to an un­ex­pect­edly weak start to 2018 and risks from abroad in­clud­ing con­cerns about Italy’s new govern­ment and the es­ca­lat­ing trade con­flict with the United States.

Italy’s coali­tion govern­ment com­prises anti-es­tab­lish­ment par­ties with a brief to shake up EU in­sti­tu­tions while US Pres­i­dent Don­ald Trump has threat­ened al­lies with hefty tar­iffs on car im­ports in ad­di­tion to uni­lat­er­ally im­posed metal du­ties.

The Berlin-based DIW think-tank said it cut its gross do­mes­tic prod­uct growth fore­cast for Europe’s largest econ­omy by 0.5 per­cent­age points to 1.9 per cent this year, and by 0.2 per­cent­age points to 1.7 per cent in 2019.

“Un­cer­tainty arises mainly from grow­ing con­cerns about some Euro­pean coun­tries, mainly Italy, and the pos­si­bil­ity of an es­ca­lat­ing trade con­flict be­tween the United States and the rest of the world,” DIW said.

The un­cer­tain busi­ness out­look is caus­ing com­pa­nies world­wide to scale back in­vest­ments and this is putting the brakes on Ger­man ex­port growth, DIW added.

“The sit­u­a­tion in Italy is caus­ing the fear of a resur­gence of the eu­ro­zone debt cri­sis,” DIW head Mar­cel Fratzscher said.

“It’s a wake-up call for politi­cians in Europe, es­pe­cially for the Ger­man govern­ment, to fi­nally lean into the re­form de­bate for a more cri­sis-prone Europe.

“The pro­pos­als and op­tions are on the ta­ble, now it’s time for ac­tion. Euro­pean na­tions have to put up a united front, also against Trump and his pro­tec­tion­ism,” Fratzscher said.

France and Ger­many, the euro zone’s two big­gest economies, want to agree a roadmap for Euro­pean Union re­forms by June 19 in or­der to present later to EU lead­ers at the June 27-28 sum­mit.

French Pres­i­dent Em­manuel Macron wants a fund set up that would help coun­tries fac­ing an eco­nomic shock and smooth out di­ver­gences among mem­bers’ economies.

But Ger­man Chan­cel­lor Angela Merkel has been re­luc­tant to com­mit to any­thing that could see the trans­fer of tax­payer funds to other coun­tries, in­clud­ing in the form of a de­posit in­sur­ance scheme for banks.

The un­cer­tain busi­ness out­look is caus­ing com­pa­nies world­wide to scale back in­vest­ments and this is putting the brakes on Ger­man ex­port growth.

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