The German economy will slide into a recession in the current quarter, the Kiel Institute for the World Economy (IfW) said on Wednesday as it slashed its growth forecasts for Europe’s biggest economy due to trade disputes and Brexit uncertainty.
The IfW institute said it expected the German economy to shrink by 0.3 percent quarter-on-quarter in the third quarter after a 0.1 percent contraction in the previous quarter.
It also cut its 2019 growth forecast for the German economy to 0.4 percent from 0.6 percent previously. For 2020, it now sees growth of 1.0 percent for 2020, down from its earlier estimate of 1.6 percent. For 2021, the institute predicts an expansion of 1.4 percent.
“The real problem with Donald Trump’s trade disputes is not the tariffs themselves, but the great uncertainty about what is to come. Uncertainty is poison for investment decisions,” IfW President Gabriel Felbermayr said.
He noted, however, that many emerging countries around the world still had a lot of economic catching up to do.
“This offers very great export opportunities for German mechanical engineers and car manufacturers,” he said. “There is therefore no reason to question the export orientation of the German economy.” The RWI economic institute also reduced its growth forecast for the German economy for this year to 0.4 percent from 0.8 percent previously. For 2020, it sees 0.9 percent growth, saying there were increasing signs that the economy was going into a downturn.
“In particular, the decline in production continues in the manufacturing sector, especially in the automotive industry,” it said. “This increases the risk that the German economy will fall into recession.”
Chancellor Angela Merkel told lawmakers earlier that the current economic situation in Germany meant tax revenues may come in lower than expected. This could limit the government’s fiscal room to counter a recession.
However, Finance Minister Olaf Scholz told lawmakers on Tuesday that Germany was ready to pump “many, many billions of euros” into its economy to counter any significant slowdown in growth and the country must take bold measures to fight climate change before it’s too late.