Ifo Institute: German economy barely escaped recession

“The German economy barely escaped recession in 2018.” With this assessment, the German Institute for Economic Research (Ifo) CEO Timo Wollmershäuser has responded to the latest figures from the German Federal Statistical Office. “Crucial for the clear cooling of the economy is the German industry, which should have been in the second half of 2018 actually in a recession,” Wollmershäuser said. The sharp decline in production in the automotive industry in the third quarter was recovered only to a small extent in the fourth quarter. In addition, by the end of the year production had shrunk in all other major manufacturing sectors.

“For 2019, however, a macroeconomic recession is not in sight, as the domestic drivers are still intact,” says Wollmershäuser. Employment is likely to surpass its record of the previous year this year. At the same time, wage increases, tax and duty relief, as well as an expansion of transfers, should provide households with a strong income boost. “In addition, the state expands its spending on investment and defense, so the impetus this year is expected to total 24 billion euros.” Finally, the construction sector should remain lively due to the continued low interest rates. Overall, however, economic growth this year will probably be lower than in the previous year.

Exports of the German industry in the fourth quarter could have increased again somewhat. However, the result was disappointing for the year as real exports remained broadly unchanged over the course of the year. “The main reason for this was the weakening of the global economy, which came under fire from numerous economic-political events such as the tariff dispute and Brexit. But also home-made problems, especially in the German automotive industry, which were associated with new exhaust standards, noticeably dampened the economy. “

Value added in the more domestic services (including trade) and construction sectors should have increased towards the end of the year, offsetting the decline in manufacturing. All in all, the German economy has passed its high point, which was reached at the beginning of last year, and has fallen into a downturn, in which the over-utilization of production capacities is decreasing, said Wollmershäuser.

Comments are closed.