Germany 's top economists see short-term growth slowdown
March 23, 2016
The German Council of Economic Experts predicted on Wednesday that the country's economy will lose some of its momentum in 2016, due to the knock-on effects of the global financial slowdown. In light of this, the advisory council revised its GDP growth forecast for the year downwards slightly, from 1.6 percent to 1.5 percent.
Nevertheless, the council members pointed to healthy consumer sentiment in Europe's largest economy and a robust labor market as powering sustained levels of economic growth in the longer term, forecasting GDP growth in 2017 to stand slightly higher at 1.6 percent.
"The upswing in Germany continues," the econmic council said it its report on Wednesday.
Refugee crisis remains 'major challenge'
Dealing with the challenges facing the German economy, the council cited the refugee crisis as a “major challenge" for economic policy.
The experts estimated that by the end of 2017 unemployment levels in Germany could reach the 3-million mark, due to an additional 250,000 refugees becoming job-seekers - meaning that every twelfth person without work would have come to Germany as part of the current migration influx.
"Bottlenecks in asylum procedures are currently causing significant delays in labor market integration," the report outlined.
Despite the economic hurdles ahead, the experts continued to stand by their previously publicized position that the German economy could shoulder the costs of the refugee crisis both this year and the next. The report stressed that the government should not have to increase taxes or chalk up new debt to pay for necessary measures.
Banks under pressure
The German Council of Economic Experts did voice more concern when it came to issues affecting the eurozone as a whole however, and potential contagion risks for the German economy.
The report cited what it termed the "extremely loose" monetary policy of the European Central Bank and its recent moves to cut interest rates to an all time low, as posing large risks for the banking sector in the medium-term.
The experts predicted that the current zero percent interests rates were likely to persist longer than initially planned, putting banks under pressure, and increasing speculation that the Eurozone could be weighed down by ongoing negative inflation.
Overall, banks were recommended to rethink how they operate in light of credit risks resulting from the oil price slump and the "increasing erosion of the traditional baking business model."
Brexit fallout
The prospect of Britain voting to leave the European Union in a referendum on June 23 was also cause for concern, according to experts.
They said that London' s importance as a financial center meant that should the UK vote to leave the EU, it would trigger considerable uncertainty for financial markets around the world, adding that the risk "of a resurgence of a crisis in the eurozone would be greatly increased."
The report also pointed to the risk of a potential domino effect in the wake of Brexit, causing other countries to become more insular, doing away with the Schengen zone, and hampering trade within Europe.
The German Council of Economic Experts was set up in 1963 to advise the government in its economic policy. It releases reports throughout the year at the request of the German government.
hch/hg (dpa/Reuters)