Economy as a Whole: The Economic Expansion Will Continue to Stabilize

After very strong German economic performance again in the second quarter of 2017, the economic indicators suggest that the growth trend is set to continue. The Kiel Institute for the World Economy (IfW) expects GDP to expand by 1.7 % in the course of 2017, with the slightly lower growth rate attributable exclusively to the lower number of working days. Private consumption will expand at a much slower pace due to purchasing power losses resulting from the increase in oil prices. With no further increase in spending on refugee migration, the rate of public consumption growth is likely to slow. Instead, the IfW expects investments to be the main engine driving the sustained upswing, primarily due to the further expansion in construction investments. Equipment investments are also likely to pick up again after showing slightly slower development of late due to the uncertain international environment. Foreign trade also dropped due to the uncertainties on key sales markets such as the United States and the United Kingdom. As the global economy gradually recovers, however, the IfW predicts a return to strong export and import growth over the next two years, with the upswing, driven primarily by the domestic economy, expected to result in imports growing at a much faster rate than exports after a subdued start to the year.

Looking ahead to 2018, the IfW still expects to see a further acceleration in economic momentum, predicting GDP growth of 2.0 %. This forecast rests on the fact that the expansion forces in the domestic economy are likely to remain strong, with the monetary environment expected to continue to provide considerable stimulus and the outlook for exports expected to improve further as the global economy recovers.

Nevertheless, the downside risks are also mounting as overutilization increases. According to the IfW, risks to the growth forecast lie in the ECB’s expansive monetary policy and the resulting risks for financial market stability, any sharp increase in crude oil prices, as well as the considerable differences within the EU and the associated structural threats to monetary union. It also remains to be seen to what extent the protectionist measures that President Trump has called for will be implemented, which would pose a risk to the global trading system.