Ifo raises German GDP growth forecast

BERLIN: Vibrant domestic demand and strong export growth fuelled by a recovery in the euro zone would boost growth in Germany this year and next, the Ifo economic institute said yesterday, raising its 2017 growth forecast for Europe’s largest economy.

“We’re experiencing a first half which is so strong that the impetus will carry on into the coming year,” Timo Wollmershaeuser, head of economic research at Ifo, said in a statement.

Ifo raised its growth forecast to 1.8% from 1.5%, adding that risks linked to Britain’s decision to leave the European Union and the election of Donald Trump as US president have receded since the start of the year.

“We assume the Brexit negotiations between Britain and the EU will go ahead without much turbulence, and an exit plan should emerge early on without any major negative effects on the economic interdependence between the EU and Britain,” said Wollmershaeuser of the talks which began on Monday.

For 2018, the institute predicts Germany’s gross domestic product will expand by 2.0%, up from the 1.8% it had predicted previously.

“The upswing is being driven by the domestic economy, especially construction and consumption,” Wollmershaeuser said. “But now we have industry too. The improving economies of the euro zone and the rest of the world are significantly boosting exports.”

Consumption, construction and state spending have been the main growth drivers in Germany as exports have gradually weakened. These three pillars of growth have been supported by a robust labour market and the low interest rate environment created by the European Central Bank’s expansive policy.