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German Economy Back on Track, Despite Weak Global Economy

Ferdinand Fichtner (), Guido Baldi, Franziska Bremus, Karl Brenke, Simon Junker, Claus Michelsen, Maximilian Podstawski, Thore Schlaak and Kristina van Deuverden ()

DIW Economic Bulletin, 2016, vol. 6, issue 11, 129-132

Abstract: The global economy is stalling. Global production increased by only 3.3 percent last year—the lowest growth rate since the financial crisis—and is expected to rise by only 3.3 percent in 2016 as well, which is lower than originally predicted. The reason for the sluggish growth lies primarily in the changes taking place in the emerging countries: the Chinese economy continues to lose momentum, and low export revenues in the commodity-exporting countries are hindering economic activity. In the industrialized countries, however, the moderate pace of growth continues, not least due to increased purchasing power, which is in turn partly due to the decreased energy costs. In these countries, consumption remains an important pillar of growth and the labor market situation is improving. By contrast, investment remains subdued and only minor stimuli are expected from net exports since the momentum in the emerging countries is likely to increase only slightly in the coming year. The risks to the global economy are skewed to the downside. Increased uncertainty in the financial markets could worsen financing conditions. The euro area is facing the risk of deflation. In spite of the currently gloomy global economic environment, the German economy is developing robustly. Although weak demand in the overseas markets led to a decline in German’s industrial production in the second half of 2015, it has been on the rise once again since the beginning of this year. During the forecast period, exports should benefit from a gradually improving global economy. Germany’s strong domestic economy, which is fueled primarily by increased private consumption, serves as a critical growth-driver. Employment continues to grow and wage increases can still be observed. The money being spent on the housing, care, and integration of the refugees is boosting consumption—and although these costs are substantial, the public budget will continue to run high surpluses. Financial leeway, however, is expected to become more limited.The German economy is likely to grow by 1.6 percent this year by 1.6 percent, and by 1.5 percent in the coming year.

Keywords: Business cycle forecast; economic outlook (search for similar items in EconPapers)
JEL-codes: E32 E66 F01 (search for similar items in EconPapers)
Date: 2016
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