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German growth outlook cut

October 17, 2013

Germany’s leading economic institutes have cut their growth outlook for the country. This year, German output will grow half as much as expected. But in 2014, Europe’s biggest economy may see a full-blown upswing.

Image: picture-alliance/dpa

The German economy was expected to grow only by 0.4 percent, the countries four main economic think tanks said Thursday, as they presented their autumn growth forecast.

The 2013 growth figure marked a sharp revision of the think tanks' spring estimate of 0.8 percent, and was prompted by more sluggish growth in emerging economies and mounting risks for a global economic recovery.

The four non-profit research groups, which include the Ifo institute in Munich, Berlin's DIW, as well as the IW in Halle and Essen-based RWI, also said the German economy was on the threshold of a significant upswing carried by growing domestic demand.

In 2014, Germany's gross domestic product (GDP) was estimated to be 1.8 percent higher than this year, the institutes added, which was just 0.1 lower than forecast in their spring report.

The recovery next year would be mainly boosted by 1.4 percent higher private consumption, as well as by significant gains of 7 percent in capital investments such as machinery.

Message to politics

Next year's robust growth would create a public budget surplus of about 33 billion euros ($44.8 billion), the institutes said.

They called on the government to use the surplus for investing in the country's crumbling infrastructure, as well as in education and research.

At the same time, they warned against the introduction of a minimum wage in Germany, which is a key demand by Chancellor Merkel's likely future coalition partner, the Social Democratic Party (SPD).

"A blanket minimum wage that applies to all sectors and all regions would probably have significantly more negative consequences for the labor market than the current sectoral deals," the think tanks wrote in their report.

German research data show that 11 percent of workers in western Germany and 25 percent in eastern Germany earn less than the 8.5 euros-an-hour minimum wage proposed by the SPD.

uhe/kms (Reuters, dpa, AFP)