Germany Lowers 2020 Growth Forecast as Slowdown Persists
A pedestrian arrives at Wolfsburg Hauptbahnhof railway station as the Volkswagen AG (VW) headquarters stand beyond in Wolfsburg, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

Germany Lowers 2020 Growth Forecast as Slowdown Persists

(Bloomberg) -- Chancellor Angela Merkel’s government cut its 2020 growth forecast as Europe’s biggest economy expects the pinch from waning global demand, Brexit and lingering trade disputes to carry over into next year.

Gross domestic product will expand by 1% next year, compared with an earlier expectation of a 1.5% increase, the Economy Ministry said Thursday in a statement. While the outlook is an improvement from this year’s 0.5% projection -- which the government kept steady -- the pace is a notable slowdown from previous years.

“The outlook may currently be dampened, but there’s no threat of an economic crisis,” Economy Minister Peter Altmaier said in Berlin. “Economic stimulus packages, in the traditional sense of triggering a flash in the pan, are not the right instruments” to spur further growth, he added, ticking off a list of efforts already underway by the government.

Germany Lowers 2020 Growth Forecast as Slowdown Persists

Germany’s critical manufacturing sector has been hard hit as trade disputes knock demand for exports, and the prolonged slowdown is softening political resistance toward abandoning the country’s rigid balanced-budget policy. The domestic economy remains resilient, however, and there may be signs that the negative developments affecting international trade may soon bottom out, the government said.

Altmaier said that if the U.K. can achieve an orderly Brexit, it would limit the negative impact of the move and support Germany’s economic outlook. Negotiators from the U.K. reached an agreement with officials in Brussels Thursday that could pave the way for a deal.

Lawmakers from Merkel’s Christian Democrat-led group have been among the most crucial opponents of plans to respond to an economic hit with fiscal stimulus, and their stance regarding a balanced budget is beginning to soften, according to people familiar with party discussions.

The lower outlook may further speed up stimulus discussions as it will impact tax receipts and make balanced-budget targets harder to hit. It also increases spending leeway.

Germany’s constitution allows the government to build up a structural deficit of 0.35% of the country’s gross domestic product, which would amount to about 4.9 billion euros ($5.4 billion) in 2020, a government official said. Tapping that facility “depends very much on whether economic growth gains traction and stabilizes federal revenue,” Altmaier said Thursday. Germany must avoid placing new burdens on future generations, he said.

The finance ministry will present revised tax estimates on Oct. 30, and lawmakers will have to take these figures into account when finalizing the budget plan for 2020.

Germany is widely expected to have slipped into a technical recession in the third quarter, after a 0.1% contraction in the April-June period.

“Germany will not hold back in times of recession,” said Carsten Schneider, deputy leader of the parliamentary caucus of the SPD -- Merkel’s junior coalition partner. Whether the balanced budget can be upheld “will be decided by the coalition in the course of the budget planning.”

©2019 Bloomberg L.P.

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