Economic Outlook

Uncertainty weighs on growth only temporarily

Kiel Institute Economic Outlook Germany, Nr. 17 (2016 | Q1)

The German economy remains robust in a difficult international climate. In the current year, we expect GDP to increase by 2 per cent. That represents a reduction of 0.2 percentage points from our earlier forecast, mainly due to a slowdown in exports caused by sluggish growth in foreign markets during the winter half-year period. However, we still expect the economy to perform better than in 2015 and to expand very strongly overall. Most of this growth will be due to domestic factors. Consumer spending will increase at a very high rate throughout the forecast period, driven by rising incomes due to the sustained strength of the labor market. Boosted further by low oil prices and government transfers, consumer spending is expected to grow this year at a rate not seen for more than 15 years. Investment is likely to improve and become the second pillar of the recovery. Construction investment in particular is projected to increase more rapidly than in the previous year, thanks to exceptionally favorable conditions. In the course of 2016, we expect the global economy to gradually emerge from a period of weakness and provide better opportunities for German exporters. Looking ahead to 2017, we expect to see a further acceleration in the economy (2.2 percent increase in GDP). One reason for this optimism is the likely continued buoyancy of the domestic economy, driven in part by the continued high level of monetary stimulus as well as an improvement in exports as the global economy recovers.