Joint Economic Forecast, Fall 2017: Upturn Remains Robust—Amid Mounting Tensions

The German economic upturn has gained both in terms of strength and breadth. In addition to consumer spending, external trade and investments are now also contributing to economic expansion. Whereas the very high economic momentum in the first half of the current year will slow slightly, expansion of economic output this year and next will exceed production capacity growth. As a result, overall capacity utilisation will increase, with economic output exceeding potential output. Gross Domestic Product is likely to grow by 1.9 percent this year and by 2 percent in 2018 (calendar-adjusted: 2.2 and 2.1 percent, respectively). Unemployment will see a further decline, to 5.7 percent in 2017, and to 5.5 percent in 2018 (previous year: 6.1 percent). On the other hand, the pace of new job creation is expected to slow down. Consumer price inflation will see a substantial rise as oil prices are not declining any longer; upward pressure on domestic prices is also becoming discernible. Accordingly, the inflation rate, at 1.7 percent this year and next, will turn out appreciably higher than last year, when consumer prices were only up by 0.5 percent. Public-sector budgets are generating appreciable surpluses that are not due to cyclical factors alone. If the next federal government makes use of the scope provided by structural government budget surpluses in order to lower taxes and levies or increase its spending, financial policy would have an expansionary orientation, not only in this but also in the extended forecast period; otherwise, it would have a more or less neutral effect as of the coming year.