IMF trims outlook for Germany

BERLIN: The International Monetary Fund (IMF) yesterday cut its 2018 forecast for German GDP growth to 2.2%, saying rising protectionism and the threat of a hard Brexit had exposed Europe’s biggest economy to significant short-term risks.

The Washington-based lender, whose previous prediction from April was 2.5%, edged its 2019 forecast up to 2.1% from 2.0%.

“Short-term risks are substantial, as a significant rise in global protectionism, a hard Brexit, or a reassessment of sovereign risk in the euro area, leading to renewed financial stress, could affect Germany’s exports and investment,” it said in a report.

President Donald Trump has announced tariffs on a wide range of US imports that threaten to unleash a global trade war, and London and Brussels remain at odds over the terms of Britain’s looming departure from the European Union.

The IMF welcomed plans by Chancellor Angela Merkel’s new coalition government to raise public investments and support long-term growth, but it said Berlin could do more.

Given Germany’s rapidly ageing society, IMF directors recommended further expanding public investment in infrastructure and education as well as setting more incentives for private investments.

“Such measures would bolster productivity growth, further lift long-term output, and reduce Germany’s large current account surplus,” it said.

The surplus fell to 8.0% of economic output last year from 8.5% in 2016, but is expected to rise again to 8.3% this year, the IMF said.

Separately yesterday, the Federal Statistics Office said orders rose 2.6% after an upwardly revised drop of 1.6% the previous month. The latest reading beat a Reuters poll of analysts, who had predicted a 1.1% rise.

“The upswing is alive, but it has passed its peak,” Bankhaus Lampe economist Alexander Krueger said.

The Economy Ministry said industrial output was likely to rise moderately in coming months.

The rise in May was mainly driven by demand from other euro zone countries and domestic clients. A breakdown of the figures showed that orders for capital goods and consumer goods jumped the most.

The ministry said the four monthly drops from January to April were a consequence of a strong jump in orders in the second half of 2017.

“The weakness of the global economy in the first quarter and uncertainty about trade policy also played a role,” it said. “(The order) backlog is still very high and business morale is still better than the long-term average despite a recent deterioration.”

Thomas Gitzel of VP Bank said that the orders figures suggested that the German economy’s relatively weak performance in the first quarter was just a blip.

“Provided the trade dispute does not escalate further, German GDP will regain some momentum in the second half of the year,” he said.