German Economy Winter 2018 - Upswing stretched to its limits: Acceleration only temporary

Martin Ademmer, Jens Boysen-Hogrefe, Salomon Fiedler, Dominik Groll, Nils Jannsen, Stefan Kooths, Saskia Mösle and Galina Potjagailo
Authors registered in the RePEc Author Service: Saskia Meuchelböck

No 50, Kiel Institute Economic Outlook from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The upswing in Germany is starting to falter. In the third quarter, the economy shrank for the first time in three years. This decline was primarily due to special factors. In particular, problems with the new vehicle certification standard (WLTP) affected the automotive industry. In addition to that, low water levels in the Rhine river impaired production. As these temporary factors expire, the economic expansion will pick up again. However, even so the upswing will increasingly face its limits. In the face of very high capacity utilisations, companies are having appreciable difficulties to keep expanding production at a quick pace. This is especially apparent in the construction sector, where production probably has reached its limit already, such that further increases will only be possible insofar as firms are able to expand their capacities. The palpable tightness of the labour market will continue. This will restrict employment growth and lead to strong wage increases. Household disposable incomes should continue to rise markedly. Next year, extensive tax reductions and transfer increases will provide an additional boost. Therefore, private consumption will probably increase substantially. Exports will quickly move on from their current weakness, which was to a large extent due to the recent troubles in the car sector. But the gradual cooling down of the global economic expansion will also reduce the dynamism of exports in the future. Against this backdrop, we have reduced our forecast for German GDP by 0.4 percentage points since autumn, such that we now expect growth of 1.5 percent in 2018. In 2019, we see the economy growing by 1.8 percent (autumn: 2.0 percent). A similar rate is expected for 2020, because while economic dynamism will slow down markedly, the high number of working days will give a boost to GDP in that year.

Keywords: business cycle forecast; stabilization policy; leading indicators; outlook (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-mac
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