Think tanks cut German growth
October 9, 2014
Germany's top economic research groups on Thursday slashed their 2014 growth estimate for Germany down to 1.3 percent, revising their more optimistic spring outlook of 1.9 percent output expansion.
The four institutes, including Munich-based Ifo, the DIW in Berlin, the RWI in Essen as well as Halle's IHW, also predicted the German gross domestic product (GDP) in 2015 would reach 1.2 percent, which was also significantly lower than their previous estimate of 2 percent.
In their bi-annual growth report, they noted that growth had "cooled noticeably" in Europe's biggest economy, hit by "sluggish" expansion on a global scale and "slowing momentum" in Europe.
"The German economy is stagnating, and there's no indication for the moment that this will change before the end of the year," DIW economist Ferdinand Fichtner told a news conference in Berlin.
After a strong start into 2014, with impressive growth of 0.8 percent in the first quarter, the German economy contracted by 0.2 percent between April and June. Figures for the third quarter have yet to be released, but economists are expecting growth to stagnate at best.
Call for higher spending
The four think tanks were also skeptical about the stimulating effects of the European Central Bank's (ECB's) ultra-loose monetary policy. The ECB has recently cut its main interest rates to historic lows and has promised to start buying assets from commercial banks in efforts to kick-start the eurozone economy.
"The latest raft of measures is unlikely to provide any additional impulses for the economy," the institute's report said.
Instead, governments in Europe must do more to boost growth and create the right conditions for investment, they added. Notably Germany's zero-deficit policy, which includes caps on spending and investment, mustn't be seen as "an end in itself from an economic point of view."
"It could cost more in the long-run, in terms of growth, than the immediate costs of a small deficit," DIW's Ferdinand Fichtner said.
Therefore, the institutes called on the government to increase public spending in areas that had the potential to boost growth, such as investment in infrastructure.
After the release of the report, German Chancellor Angela Merkel hinted Thursday that her government might step up investment in infrastructure.
Noting that Germany's economic outlook had become "a bit cloudy," she said, "The government is preparing itself for this situation by debating how we can make additional investments possible."
Merkel mentioned the digital economy and the energy sector, as two possible areas of higher government spending, and vowed to reduce bureaucracy in general.
uhe/el (dpa, Reuters, AFP)