Economic Outlook

German Economy Gains Momentum

Kiel Institute Economic Outlook Germany, Nr. 2 (2014 | Q4)

The German economy is regaining momentum. GDP is forecast to increase by 1.7 percent in 2015 and 1.9 percent in 2016. Initially, the acceleration in economic growth will be driven in particular by private consumption thanks to a sharp increase in income and higher purchasing power as a result of a marked oil price decline. In the course of time, investment spending will add to economic momentum on the back of favorable financing conditions and strong upward cyclical forces. German exports have experienced a robust trend, notwithstanding a challenging global environment. Furthermore, the terms of trade will also improve significantly as a result of lower oil prices in the year to come. Employment growth will initially continue to decelerate. Low consumer price inflation is almost exclusively due to a strong fall in energy prices rather than deflationary trends, which are visible nowhere in Germany. Public finances will continue to generate a surplus. The introduction of economic stimulus programs would be counterproductive from an economic stability point of view as production capacities are fully utilized. On the contrary, there is a risk of overheating in the medium term, which will call for a timely response from policymakers.