The big fears around Brexit have subsided somewhat - but at least temporarily the EU exit vote of Britons will also hit the German economy. The euro area overall could get a little stronger. And what about the longer term?
Berlin / Frankfurt. The economy in Germany and in the euro zone will be restrained next year by the exit of the British from the EU according to estimates by economists.
However, the details of Brexit are still to be negotiated. But there was already worry about exports and investment, the German Institute for Economic Research (DIW) declared on Thursday. The European Central Bank (ECB) have lowered their expectations for 2017.
DIW still assumes a growth of 1.9 percent for the coming year. According to their forecast, there will be an increase in German economic output in 2017 but it will be noticeably lower at 1.0 percent - before the gross domestic product (GDP) recovers in 2018 with 1.6 percent. DIW head, Marcel Fratzscher warned: "Brexit creates uncertainty and will cause many companies worldwide to postpone investments." Overall, however, the economy is on track, the expected German growth in 2016 being higher than previously thought.
The ECB assessed the medium-term outlook in the euro area in a slightly more pessimistic way. By 2016, they calculated a growth in GDP of 1.7 percent - 0.1 percentage points more than in the last forecast three months ago. This will then probably be reversed in 2017 and also in 2018: instead of the previously assumed 1.7, it should be 1.6 percent plus. One reason, according to the ECB President Mario Draghi: the vote of the British to withdraw from the EU.
Also, the Institute for World Economy (IfW) in Kiel expects consequences of the referendum - at least temporarily. Expected German growth (1.9 percent) is in line with the DIW colleagues. The people from Kiel are more optimistic for 2017/2018 (1.7 / 2.1 percent). "The Brexit vote dampens this country somewhat, but it does not choke the economy " said IfW expert Stefan Kooths. The researchers also believe that Germans will spend more money: private consumption will grow strongly, the inflation rate of 0.4 percent (2016) will rise significantly to 1.6 percent (2018).
So far, the ECB tries relatively unsuccessfully, to heat up the low inflation using increasingly cheap central bank money. The German Federal Bank itself expects an increase of the price level by a mere 0.2 percent in 2016. For 2017, the monetary authorities are predicting a rise in consumer prices by 1.2 percent, in 2018 by 1.6 percent. Goods and services remaining permanently cheap can cause the entire economy to falter, because investments are postponed.
The German labour market is the opinion of the researchers will benefit from the development which remains good. The IfW counts on a decline in the unemployment rate of 6.1 percent this year to 5.8 percent in 2018. DIW states: "The employment growth remains strong, albeit losing some momentum" The surplus in public finances could run from 16.7 billion euros in 2016 to 26 billion euros in 2018 according to the IfW. Fratzscher warned, however: "The fear is great that the public purse is used the high surpluses for election gifts, instead of increasing investment in infrastructure and education."
The Essen-based research institute, RWI published a similar prognosis on Thursday. Again, a GDP growth of 1.9 percent is assumed for the full year 2016. For 2017 and 2018, however, a slowdown to 1.4 percent and 1.6 percent respectively, is expected.
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