Germany’s GDP growth outlook hit by euro crisis, US-EU trade conflict

Ifo said the economic upswing in Germany should continue but at a slower pace, echoing an assessment by the Bundesbank last week. (Reuters)
Updated 19 June 2018
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Germany’s GDP growth outlook hit by euro crisis, US-EU trade conflict

ERLIN: Germany’s Ifo institute on Tuesday cut its forecasts for growth in Europe’s biggest economy this year and next, citing a weak start to the year and increased global risks.
Ifo said it expected the German economy to grow by 1.8 percent this year and in 2019, a big revision downwards from previous forecasts of 2.6 percent and 2.1 percent respectively.
“The economy developed significantly more weakly than anticipated in the first few months of the year,” Ifo economist Timo Wollmershaeuser said. “The global economic risks have risen significantly,” he added.
Ifo said the economic upswing in Germany should continue but at a slower pace, echoing an assessment by the Bundesbank last week.
In addition to weak industrial activity and exports in the first four months of the year, a trade dispute between the United States and the European Union is clouding the outlook for the German economy. US President Donald Trump is threatening to impose hefty tariffs on car imports from European allies in addition to unilateral metals duties.
The Bundesbank said on Monday that German growth should rebound in the second quarter thanks to higher state spending, a humming construction sector and strong private consumption.
But it warned that trade and political concerns have made the outlook for the economy more uncertain and revised down its own growth projections.
A new Italian coalition government that comprises anti-establishment parties with a brief to shake up EU institutions has also unnerved German companies.
“The downside risks for the German economy have significantly risen,” said Ifo’s Wollmershaeuser. “Germany’s economic advantages are far outweighed by two risks — euro crisis 2.0 through Italy and a trade war.”
As well as the US-EU trade dispute, German business leaders are worried that a trade confrontation between the United States and China could harm exporters that rely on the world’s two largest economies for growth.
China has raised tariffs on $50 billion in US goods, responding to similar measures by Trump, who has also threatened a 10-percent tariff on $200 billion of Chinese goods.
“The likelihood that we have a trade war that also affects Germany is higher now than it was in spring,” said Wollmershaeuser.


No need for more talks over draft budget: Lebanon finance minister

Updated 21 May 2019
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No need for more talks over draft budget: Lebanon finance minister

  • Lebanon’s proposed austerity budget may please international lenders but it could enrage sectors of society
  • Lebanon has one of the world’s heaviest public debt burdens at 150 percent of GDP

BEIRUT: Lebanon’s finance minister said on Tuesday there was no need for more talks over the 2019 draft budget, seen as a vital test of the government’s will to reform, although the foreign minister signalled the debate may go on.
The cabinet says the budget will reduce the deficit to 7.6% of gross domestic product (GDP) from last year’s 11.2%. Lebanon has one of the world’s heaviest public debt burdens at 150% of GDP.
“There is no longer need for too much talking or anything that calls for delay. I have presented all the numbers in their final form,” Finance Minister Ali Hassan Khalil said.
But Foreign Minister Gebran Bassil suggested the debate may go on, telling reporters: “The budget is done when it’s done.”
While Lebanon has dragged its feet on reforms for years, its sectarian leaders appear more serious this time, warning of a catastrophe if there is no serious action. Their plans have triggered protests and strikes by state workers and army retirees worried about their pensions.
President Michel Aoun on Tuesday repeated his call for Lebanese to sacrifice “a little“: “(If) we want to hold onto all privileges without sacrifice, we will lose them all.”
“We import from abroad, we don’t produce anything ... So what we did was necessary and the citizens won’t realize its importance until after they feel its positive results soon,” Aoun said, noting Lebanon’s $80 billion debt mountain.
A draft of the budget seen by Reuters included a three-year freeze on all forms of hiring and a cap on bonus and overtime benefits.
It also includes a 2% levy on imports including refined oil products and excluding medicine and primary inputs for agriculture and industry, said Youssef Finianos, minister of public works and transport.
“DEVIL IN THE DETAIL“
Marwan Mikhael, head of research at Blominvest Bank, said investors would welcome the additional efforts in the latest draft to cut the deficit.
“There will be some who claim it is not good because they were hit by the decline in spending or increased taxes, but it should be well viewed by the international community,” he said.
Jason Tuvey, senior emerging markets economist at Capital Economics, said: “The numbers will be of some comfort to investors, but the devil will be in the detail.”
“Even if the authorities do manage to rein in the deficit, it probably won’t be enough to stabilize the debt ratio and some form of restructuring looks increasingly likely over the next couple of years,” Tuvey said.
The government said in January it was committed to paying all maturing debt and interest payments on the predetermined dates.
Lebanon’s main expenses are a bloated public sector, interest payments on public debt and transfers to the loss-making power generator, for which a reform plan was approved in April. The state is riddled with corruption and waste.
Serious reforms should help Lebanon tap into some $11 billion of project financing pledged at a Paris donors’ conference last year.
Once approved by cabinet, the draft budget must be debated and passed by parliament. While no specific timetable is in place for those steps, Aoun has previously said he wants the budget approved by parliament by the end of May.
On Monday, veterans fearing cuts to their pensions and benefits burned tires outside the parliament building where the cabinet met. Police used water cannon to drive them back.