Daily Management Review

Association of German Banks: Investments are the weakest link in the German economy


10/04/2018


The Association of German Banks (Bankenverband, BdB) called a significant slowdown in private investment the weakness of the German economy and slightly reduced the forecast for GDP growth for 2019, reports Reuters.



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Now the association predicts a 1.8% growth in Europe’s largest economy compared with a previous estimate of 1.9%. This year, BdB estimates that growth will куфср 1.9%.

“Given the escalation of the trade conflict and the difficulties that some developing countries are having, the world economy is facing the threat of slipping into a dangerous territory,” said BdB managing director Christian Ossig.

“We assume that the risks will remain manageable,” he said, adding that Germany’s economy should remain stable, despite growth rates below last year’s 2.2%.

Last month, the German government also lowered its growth forecast for this year to about 2%, saying that companies did not invest enough to achieve higher growth rates because they lacked skilled workers to increase production.

According to Eurostat, the German economy in Q2 increased by 0.5% in quarterly and by 1.9% in annual terms. In Q1, growth was 0.4% and 2%, respectively.

The German economy relies on private consumption and government spending to grow amid weakening exports. The service sector mitigates the effects of slowing production.

"Judging by the profits of companies, high capacity utilization, sustainable economic growth and very low interest rates, the investments should have increased much more," said Ossig.

BdB lowered forecasts for private investment in engineering and construction for 2018 and 2019. It is expected that investment in engineering next year will grow by 3.1% compared with the previous forecast of 3.6%.

The association also stated that the European Central Bank must put an end to its negative interest rate policy.

At a meeting in September, the ECB left the interest rate on loans at zero, the rate on deposits - at minus 0.4% per annum, the rate on margin loans - at 0.25% per annum. The Central Bank reiterated that it intends to maintain key rates at their current levels at least until the end of the summer of 2019.

The regulator also confirmed that net asset purchases will be terminated by the end of December.

However, the acceleration of inflation in some countries of the region has provoked calls for a more rapid tightening of monetary policy. The head of the Munich Institute for Economic Research (Ifo), Clemens Fust, said that if inflation in the eurozone remains above 2%, the ECB should consider raising the cost of borrowing earlier than currently planned.

source: reuters.com






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