Is the German economy slowing down?

After Germany’s new Economic Minister Peter Altmaier took office in March 2018, he made a very optimistic forecast for Germany’s economy. 

“In the next 15 to 20 years, the economy of Germany will grow two to 2.5 percent annually,” he said.

Hardly a year later, his prediction was seen as being a bit too ambitious.

In the annual economic report by Berlin’s Economic Ministry, to be released this Wednesday, Germany has cut its growth forecast for 2019 from 1.8 to 1 percent. 

It seems that Germany’s economy could be heading towards ‘stagnation’, as the ING economist Carsten Brzeski foresaw in October 2018.

Why is Germany’s economic growth slowing?

Germany is an ‘exporting nation’. In 2017 it was the third largest exporting nation globally, only the US and China exported more.

According to the Federal Statistical Office of Germany (Destatis), 86 billion euros of goods were exported to China in the same year. China is the third largest export nation for Germans and comes after the US and France. 

China experienced its slowest growth in 28 years in 2018, and its trade partners were also affected. Less growth often means less trade - and in this case, lower trade volumes between China and Germany.

Another factor that could probably hit Germany’s economy is the trade dispute between the United States and China. Various economists say they have already lowered their forecasts for the European Union due to the new special tariffs.  

Thus, Germany’s economic growth prediction is one of the lowest since the global economic crisis hit in 2008 -  in 2009 Germany’s GDP fell by 5.6 percent.

And Brexit could put on an extra $3.8 billion tariff burden on German export goods if the UK leaves the EU without an economic deal.

What do German economists say?

Several economists in Germany have called on the federal government to take countermeasures.

The German economic newspaper Handelsblatt has appealed for investment in broader ‘education reform’, better concepts for renewable energy transformation and a ‘smoother’ law for investors planning to invest in Germany. 

“University programmes have to be prepared for artificial intelligence,” said the Chairman of GFT Technologies, a German IT system producer for international banks with annual revenue of $593 million.

The German Institute for Economic Research (DIW) has called on the government to attract investment to “modernise infrastructure, energy and digital networks” in the country. 

Companies are calling for tax cuts and subsidies for innovative technology. Though many experts have discouraged general tax cuts for Germany in recent years, due to its two trillion euros in state debts, the German Finance Minister Olaf Scholz believes that such measures would be justified as a means against a possible recession, which could hit the biggest economy in the EU.

Economic stagnation  - a global trend?

The International Monetary Fund (IMF) outlook for 2019 is for ‘a weakening global expansion’. Only after three months does the IMF-related World Economic Outlook downgraded its growth expectations, 0.2 percent down to 3.5 percent for 2019. 

Although the downward revisions are modest, Germany’s issues go beyond external demands for German industrial products. Italy’s debt burden also absorbs financial resources and reduces funds for investment.

Lower private investment prospects for Mexico in 2019-20, the continuing high (over 60 percent) interest rates in Argentina - which translates into lower investment as well - and growing financial inequality contribute to the lower economic growth prospects for this year. 

Brexit, the US-Chinese trade war and nations in economic stagnation have made Germany part of a trend that can be felt across the globe.