Germany’s influential Ifo institute on Tuesday cut its 2020 German growth forecast for Europe’s largest economy as it warned that a manufacturing recession was starting to spill over into other sectors.
German exporters are struggling with weaker foreign demand, trade disputes and business uncertainty caused by Britain’s expected departure from the European Union. The headwinds from abroad mean the economy is likely post meagre growth this year.
The Ifo institute confirmed its forecast that the economy would grow by 0.6% this year but trimmed its 2020 projection to 1.7% from 1.8%.
“There is a diverging economic development: the export-oriented manufacturing sector, which accounts for about a quarter of economic output, is in recession,” Ifo economist Timo Wollmershaeuser said.
At the same time, domestic service providers and the construction industry are enjoying robust growth, he added.
“However, there are increasing signs that the weakness in the industrial sector is gradually spilling over into the domestic economy via the labour market and value creation chains,” he said.
Economy Minister Peter Altmaier told Reuters the government would stick to its forecast from April that the economy will grow by 0.5% this year and 1.5% next.
“A lot depends on the question of whether growth forces win the upper hand in the second half of this year,” Altmaier said. “We have strong activity in the domestic economy. Construction is booming, consumers are spending more.”
Altmaier pointed to positive growth signs from China, one of Germany’s most important export markets. “Still, our growth forecast from April is realistic. If growth ends up being stronger, of course I’ll be very pleased.”