Daily Management Review

German Growth Forecast For 2019 Cut By Ifo Institute, Predicts Recession In Q3


German Growth Forecast For 2019 Cut By Ifo Institute, Predicts Recession In Q3
It is possible that recession could hit the biggest European economy – Germany, in the third quarter, said the Ifo Institute for Economic Research, which has also cut its forecast for the economy for 2019. This is the latest forecast that casts a gloomy picture about the economic revival of the European Union.  
The growth forecast for the German economy for the current year was reduced from 0.6 per cent to 0.5 per cent by the Ifo on Thursday. There is likely to be shrinkage of 0.1 per cent in the German economy in the third quarter, it also said and that would technically constitute a recession following the economy reporting a similar amount of contraction in the April-June quarter.
"The outlooks is weighed down by high uncertainties," said Ifo's Timo Wollmershaeuser, referring to the possible risks that the German economy could face because of hard Brexit as well as a continuation of the trade war between the United States and China.
The trade conflicts and the uncertainty related to the departure of the United Kingdom from the European Union has pushed the export dependent manufacturing sector of the German economy into recession which has significantly negatively impacted the largest economy of Europe.
The remaining parts of the German economy are slowing being affected by the weakness in its manufacturing sector, Ifo said, and added that the logistics and the services sector of the economy are also being affected. It said that these developments were also impacting the labour market.
There would be a slight recovery in the fourth quarter according to the predictions of the institute. The latest estimates for the German economy have been made by the body on the basis of the assumption that there would not be a no-deal Brexit as well as no further escalation of US-China trade war. This means that in the eventuality of both the events happening – a hard Brexit and further escalation of US-China trade war, the German economy would register further weaker growth.
The forecast for the German economy for 2020 was cut from 1.7 per cent to 1.2 per cent.
An almost 60 per cent chance of a recession hitting the German economy was predicted earlier on Thursday by Germany's Macroeconomic Policy Institute (IMK). On the other hand, growth forecast for the economy was slashed because of trade disputes and Brexit uncertainty by the World Economy (IfW) on Wednesday.
The concerns of German savers about further continuation of low and negative rates of interest in the euro zone and even forcing them to paying banks for holding their money were sought to be calmed by German Finance Minister Olaf Scholz on Thursday before the decision of the European Central Bank on stimulus measures and a lowering of interests by 10 basis points.
Savers need not reckon with negative interest rates "across the board", Scholz told the Passauer Neue Presse newspaper. "Most contracts that customers have with their banks do not currently allow such penalty rates, so the problem is not acute," Scholz said. "Banks' boards are wise enough to grasp what they would trigger with such penalty rates.
"I don't think private customers in Germany need to reckon with negative interest rates across the board. We are monitoring the situation and are considering our options to act," he added.