Ifo lifts German growth forecasts, but warns of Brexit risk

UK Independence Party leader Nigel Farage poses behind the counter of a bakery in Sittingbourne as he campaigns for Brexit. (AFP)
Updated 16 June 2016

Ifo lifts German growth forecasts, but warns of Brexit risk

BERLIN: A jobs boom and migrant-related state spending should help Germany’s economy grow faster than expected this year and next, though the extra momentum might well be lost if Britain votes to leave the EU, the Ifo institute said.
The Munich-based think tank said that, after a strong first quarter, it now expected growth of 1.8 percent this year, up from the 1.6 percent forecast in April.
But the consequences for trade and competitiveness of a European Union minus Britain could, under a worst-case scenario, shave up to 3 percent off Germany’s long-term expansion, Ifo head Clemens Fuest said.
“The biggest risk at the moment is Brexit,” Fuest told a news conference to present the institute’s updated forecasts. “Germany has very little to gain and an awful lot to lose.”
His comments joined a salvo of warnings from Britain’s European partners of economic fallout for both sides if the Brexit camp wins next Thursday’s membership referendum.
Fuest cited the risk of higher tariffs, declining competitiveness and lower transnational investments.
On the flip side were a strong German labor market and higher spending on refugees, Ifo said, also edging up its 2017 growth forecast to 1.6 percent from 1.5 percent.
“The first quarter went better than expected,” Ifo economist Timo Wollmershaeuser said.
“The German economy’s moderate economic upturn that started in 2014 is continuing into the second half.”

STRONG CONSUMPTION

The economy expanded 0.7 percent between January and March, with soaring private consumption, higher construction investment and spending on migrants more than offsetting a dip in foreign trade.
The government expects the economy to expand by 1.7 percent this year, matching 2015 as Germans’ purchasing power continues to benefit from record high employment, rising real wages, rock-bottom borrowing costs and nearly stable prices.
Ifo said consumer inflation would accelerate to 0.5 percent this year and to 1.5 percent next while unemployment was expected to further fall this year and remain stable in 2017.
The institute predicted employment would reach record highs of 43.6 million this year and 43.9 million in 2017. That should further boost domestic demand and push up tax revenue, enabling Berlin to increase spending while keeping a balanced budget.
Exports should also rise, by nearly 3 percent this year and more than 4 percent next, propelling the current account surplus to record highs.
Its updated growth forecasts make Ifo slightly more optimistic than the Bundesbank, which expects a 1.7 percent GDP expansion in 2016 and 1.4 percent in 2017.


German economy rebounding, faces risk from virus resurgence

Updated 24 September 2020

German economy rebounding, faces risk from virus resurgence

  • The Ifo institute’s index released Thursday rose to 93.4 points in September from 92.5 points in August
FRANKFURT: A widely watched indicator of German business confidence has risen for a fifth month in a row as Europe’s largest economy rebounds from the coronavirus shutdowns — but the index remains below its long term average and uncertainty is high with virus cases rising.
The Ifo institute’s index released Thursday rose to 93.4 points in September from 92.5 points in August. The index is based on a survey of thousands of businesses about their view of current conditions and expectations for the future.
In this case the current assessment rose while the expectations part levelled off.
After shrinking 9.7 percent in the second quarter, the worst quarterly figure on record, the economy is rebounding from the severe shutdowns and restrictions on activity and movement of March, April and May.
Carsten Brzeski, chief eurozone economist at ING bank, said growth could rebound sharply with growth between 5 percent and 10 percent in the third quarter. But the recovery still faces hurdles and has a long way to go to regain its pre-pandemic footing.
“Given the recent softening of leading indicators, however, there is a risk of a double-dip in the fourth quarter,” Brzeski wrote in a research note, “unless social distancing rules are eased further; a very unlikely scenario given the latest increase in new COVID-19 cases.”