The Federal Government is expecting GDP to expand by an annual average of 0.5% this year (price-adjusted). Growth of 1.0% is predicted for 2020. The industrial downturn is continuing. The weakness of world trade is particularly impacting Germany’s export-oriented manufacturers. However, domestic demand is holding up well and is being given a further boost by fiscal stimuli. As international trade picks up speed, the forces for growth will lend greater momentum to the German economy again next year.
“Germany’s is mixed at present. However, even if prospects are currently less bright, there is no impending economic crisis. Our export-oriented manufacturing sector is under pressure due to trade conflicts, and external economic uncertainties. Nevertheless, the domestic economy remains intact, employment and incomes are rising, and the construction sector is still booming. We will have around 45.4 million people in work by the end of 2020.
We now need to roll our sleeves up. Our companies are strong, but need more backing from the Federal Government. My strategies for and the have presented proposals for this. We now need a policy to foster growth, with tax relief and , market-based solutions for the , investment in forward-looking technologies, and more efforts in the field of .”
The international environment is continuing to impact the economy. World trade has faltered since 2018. The weakness of global industry and investment is feeding through to Germany’s industrial exports. The uncertainties related to the Brexit process and the international trade disputes are affecting the external economic environment. However, it is likely that international will soon bottom out. In line with the view taken by international organisations, foreign demand will pick up and Germany’s export industry will find its feet again.
The domestic economic is holding up well. Employment is continuing to rise, although the labour market trend is slowing to some degree. We will have around 45.4 million people in work by the end of 2020. And wages are still pointing upwards. The cuts in taxes and welfare charges for employees means that people are left with a greater proportion of their wage packets.
Further details of the projection:
- The international organisations are correcting their growth forecasts downwards. However, the global economy and global trade are likely to pick up some speed in the reference period. This means that foreign trade will expand rather more sharply again next year.
- The slow industrial sector is also having a negative effect on imports. However, their growth – not least due to the resilience of domestic demand – will soften by less than that of exports.
- The German current account surplus in terms of nominal GDP is therefore likely to keep decreasing in the reference period and will fall to 6.2% by 2020.
- Investment in equipment is closely related to the capital-intensive export industry. In view of slowing industrial output, the high level of uncertainty relating to Brexit and the international trade disputes, the private sector is initially likely to reduce the amount it invests. However, as the world economy gradually gathers momentum, investment should also gain some traction again later on in the reference period.
- The environment of low interest rates and the high level of demand mean that investment in construction will continue to rise, albeit at a slower pace. The main factor restricting growth here is the labour shortage. This is also reflected in significant increases in the price level.
- The public sector is providing a powerful cyclical stimulus as it implements the coalition agreements.
The key macroeconomic figures contained in the autumn projection form the basis for the tax revenue forecast, which will be compiled in Stuttgart on 28-30 October 2019. These figures provide a general framework for drafting the budgets of the Federal Government, the Länder, municipalities and social insurance funds.