German institutes trim 2016 growth forecast

Robust consumer spending in Germany is helping fuel economic growth, experts say

Berlin (AFP) – Germany’s leading economic institutes trimmed their growth forecast for the current year on Thursday, but insisted Europe’s biggest economy is enjoying a moderate recovery, fuelled by cheap oil and robust consumer spending. 

The institutes — the DIW in Berlin, IWH in Halle, Ifo in Munich and RWI in Essen — predicted that gross domestic product (GDP) would expand by 1.6 percent this year and then by 1.5 percent in 2017. 

In 2015, German GDP expanded by 1.7 percent.

The 2016 forecast is slightly lower than the 1.8 percent the institutes had foreseen in the last few months of last year.

“The German economy is in a moderate upturn. Against the background of rising employment, noticeable wage rises and increased purchasing power as a result of falling energy prices, the recovery is being driven by private consumption,” they wrote.

Growth momentum is also coming from spending related to taking in and housing a huge influx of refugees, the institutes continued. 

“In addition, domestic demand is benefitting from low interest rates. But few stimulative effects are being seen from the global economy,” they added. 

The additional spending on refugees, however, will erode the government’s budget surplus, the think tanks said.

“Refugee-related spending is on the rise and fiscal policy is also slightly expansive. But a tangible increase in income tax revenues, in sales tax and social contributions, as well as falling interest payments, means the budget surplus could still amount to 11 billion euros ($12 billion) this year and 10 billion euros next year,” they calculated. 


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