The current autumn forecast of the leading economic research institutes proves it: The economic upswing in Germany has slowed perceptibly since the beginning of 2018, the growth rate for the current year will be far lower than in 2017. In their joint diagnosis the banks forecast that German gross domestic product will grow at a rate of 1.7 per cent in 2018, which, incidentally, also corresponds to DZ BANK’s current forecast.
This slower pace of growth is due on the one hand to slackening demand from abroad, which is linked to the fact that the international economic climate has deteriorated to some extent. On the other hand, in the opinion of the economic researchers the bottlenecks in the employment market are now also having an increasingly dampening effect on growth. The lack of skilled workers is making it difficult for the companies to fill vacancies fast.
But for the next few years the report is quite optimistic: The economic researchers believe the growth rate is likely to return to 1.9 per cent again next year and that it will also be higher than the average in 2020 at 1.8 per cent. However, this outlook is based on the assumption that the trade dispute between the United States and Germany and the EU does not escalate. If the USA were to impose penal tariffs on European automobile exports and the EU were to retaliate with corresponding countermeasures, then the banks forecast a severe recession for Germany and the EU, as well as for the USA.
The report also emphasizes further growth risks: The advent of Brexit is looming ever larger without any indication of what the future relationship between the European Union and Great Britain will look like. In addition, doubts about the stability of Italy’s fiscal policy are becoming increasingly acute and a conflict with the EU is becoming ever more likely. The crises in Argentina and Turkey harbour further risks in the event that they spill over into further emerging markets because some companies’ foreign currency debt has increased steeply there. Against the background of these smouldering economic and political risks, the outlook given in the expert report would after all appear to be characterised by considerable optimism.
Finally, in the economic policy section of the report the banks look into the housing shortage, rising property prices and possible economic policy countermeasures. They do not speak highly of the German government’s current initiatives: they believe that short-term initiatives such as the child housing allowance tend to lead to deadweight loss effects and rising costs because capacity utilization in the construction industry is already good. The government should rather focus on eliminating the supply-side bottleneck factors, i.e. above all it should facilitate and accelerate the development of new building land. Cost factors, such as, for example, the steep increase in the land transfer tax should be reduced again. We already looked into this topic in greater detail in our blog article of 25 September 2018 “The German housing market: The housing summit will not noticeably improve the situation” and we come to very similar conclusions.