Germany slashes GDP forecasts on trade uncertainty

Germany, the Eurozone’s largest economy cut its economic growth forecasts on the back of a shortage of skilled workers and uncertainty from global trade tensions.

The slash in growth forecasts signaled the increasing vulnerability to the U.S. China trade wars.

Germany’s gross domestic product is expected to grow at a rate of 1.8% this year. This marks a sharp downgrade compared to a 2.3% projected growth rate previously.

For the year ahead, German growth is expected to rise 1.8%, again a downward revised outlook compared to 2.1%. In 2017, German growth averaged 2.2% on the year. The downward revision to the GDP comes following a report from IMF earlier last week.

The International Monetary Fund, in its world economic outlook report, said that global growth would ease in the back of the trade disputes. The institution slashed growth forecasts not just for the global economy but also for the United States.

The German economy has been in a decade-long economic upswing. It is projected to maintain a strong domestic demand, but uncertainties stem from the fallout of the trade disputes between the United States and China. The world’s third largest exporter is said to be more exposed to the trade disputes, government officials noted last week.

The decision marked by the latest indications from the United States to reduce its trade deficit with the rest of the world is advantageous for the U.S. However, for most of the exporters this means having to deal with offering the U.S. trade concessions or face higher tariffs.

Although trade tensions between the United States and the Eurozone are not critical, the Trump administration has on various occasions threatened to slap higher tariffs.

This is especially true on the imports of automobiles. This could potentially hit the Eurozone’s leading economy very hard.

Germany’s economic minister, Petter Altmaier said, “The German economy is still in a strong upswing and will continue to expand for the 10th consecutive year next year, the longest period of growth since 1966.”

However, he said that Germany could achieve higher growth if the economy would expand at its potential growth rate. Altmaier noted that it was starting to become more challenging to find skilled workers in some sectors.

Despite the cut in GDP forecasts, domestic demand in Germany is expected to stay robust. This was a welcome change amid the mounting trade disputes globally. The economic minister said that the trade disputes would eventually harm everyone.

Exports from Germany were seen falling in three of the four months on the year. Manufacturing orders decline while forward-looking sentiment indicators continue to deteriorate.

Germany stated that exports are expected to rise at a pace of 2.8% in 2018, a much slower pace of increase compared to a 4.7% increase in 2017. This is expected in the back of lower global demand. For 2019, exports are expected to rise modestly to 3.7%, still slower compared to 2017.

The slower pace of exports comes due to the trade uncertainty which has also hit both business and consumer sentiment. Investors have scaled back against this background and demand a higher risk premium.

On the other hand, some believe that the downward revised GDP was still better. Germany’s GDP is expected to close around 2% GDP growth. This would mark a 10 – 11 consecutive years of growth rising at a steady pace.

The German government said that the economy would add one million jobs in 2019 compared to that in 2017. It expects total employment to rise to 45.3 million.