′German boom phase not without risks,′ say advisors | Business | Economy and finance news from a German perspective | DW | 08.11.2017

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'German boom phase not without risks,' say advisors

A panel of experts advising the German government on its economic policy has forecast the biggest GDP growth rates yet for the country for this year and next. But their optimism comes with a stern warning.

A group of economic advisors to the German government said in a report Wednesday they expected Europe's largest economy to expand by 2.2 percent in 2018, with the German Finance Ministry penciling in just 1.9 percent and the country's leading economic think tanks agreeing on 2-percent growth.

The panel of experts, which has issued forecasts and recommendations since it was called into being in 1963, is also more optimistic for this year, seeing gross domestic product (GDP) rise by 2 percent, up from a previous prediction of 1.4 percent.

The latest 463-page economic outlook insists that Germany will continue to experience a boom phase for a number of reasons.

"Private consumption is strong and so is public investment which has been increasing for a long time," the panel said. "On top of that, companies are ramping up their investments in equipment and research and development." The advisors added that Germany as an export-oriented nation was also profiting increasingly from a slow, but steady recovery of fellow eurozone economies.

Risks involved

At the same time, the experts said the steep rise in real estate prices across Europe and Germany in particular was no healthy development and one caused by the European Central Bank's protracted period of loose monetary policy.

The advisors called on the ECB to cut their huge bond-buying program faster and also end it faster than envisaged. In October, the central bank's governors decided to halve the volume of monthly asset purchases to €30 billion ($34.8 billion) a month, while also agreeing to extend the program at least until September 2018.

The latest economic outlook expects Germany to end the current year with a budget surplus of €31.3 billion, accounting for 1 percent of GDP and the highest since German unification in 1990.

The government advisors conclude there's some leeway to reduce social insurance contributions. It specifically suggests cutting the employment insurance premiums by half a percentage point to ease people's tax burden.

hg/aos (Reuters, AFP)

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