German economy cools down

The German economy has shifted down a gear. After still very high economic momentum in Germany until the middle of last year, production stalled noticeably. Temporary stress factors such as the problems of automobile manufacturers with the new WLTP standard and the low water levels in the Rhine contributed substantially to this development. However, even without those factors, economic momentum has slowed down. The external economic environment, which is characterized by pronounced political uncertainty, also contributed to the poorer business outlook. This is putting a strain on exports, and companies' willingness to invest has deteriorated, too, despite the continued rather high capacity utilization. In addition, capacity bottlenecks seem to hinder production. The proportion of companies complaining about production disruptions due to shortages in skilled labor as well as in material and equipment has stood at unusually high levels for some time. Against this background, we have significantly reduced our forecast for GDP growth for the current year by 0.8 percentage points to 1 percent. With the expiration of the temporarily burdening factors at the turn of the year, the economy is expected to pick up again. Household consumption will also increase more quickly due to rapidly rising disposable incomes. Companies are planning to further increase employment, and effective earnings are likely to grow at above-average rates given the shortage on the labor market. In addition, there will be noticeable reductions in taxes and social contributions and increases in public spending. For the year 2020, we expect a GDP growth rate of 1.8 percent. But this acceleration primarily stems from the significantly higher number of working days; apart from this, the economic trend continues to face downwards. Against this backdrop, public budget surpluses will be reduced significantly, arriving at a structurally balanced budget by 2020.