German government cuts growth outlook | Business| Economy and finance news from a German perspective | DW | 10.10.2018
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German government cuts growth outlook

The German government has lowered its forecasts for growth this year and next due to an increasingly tight labor market and risks associated with Britain's exit from the European Union and global trade disputes.

In an official growth report released Thursday, the German government revised down its 2018 growth forecast from 2.3 percent previously to 1.8 percent now. Moreover, the growth estimate for 2019 was also slashed from 2.1 percent to 1.8 percent.

The downward revision was the result of tightening conditions in the German labor market, slowing construction activity and weakening global trade, the report noted.

Read more: IMF downgrades global growth outlook, places responsibility on US-China trade tensions

Among the downside risks to the forecast, the growth report cited a 'no-deal' exit of the UK from the European Union in March 2019, an escalation of global trade disputes, notably between the US and China, as well as contagion spreading from the economic crises in Turkey and Argentina.

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With the expansion in Europe's biggest economy now in its ninth consecutive year, the government in Berlin expects domestic consumption to continue upholding growth amid weakening exports.

Household spending is projected to grow by 1.6 percent in 2018 and 2.0 percent in 2019 as consumers enjoy record-high employment, rising real wages, strong job security and low borrowing costs.

Nominal wages are expected to rise by 3.0 percent this year and by 3.1 percent in both 2019 and 2020, outpacing inflation expected at 1.9 percent and 2.0 percent respectively, which means Germans will have more money to spend in real terms.

"In view of the strong expansion of disposable income and moderate inflation, private consumption is likely to pick up noticeably," the document said.

Finally, state spending is predicted to rise significantly next year, after "provisional budgeting in the first half of 2018" — caused by an unusually long coalition-building period — had postponed necessary investment into next year. Expenditure for that purpose would jump by 5.9 percent in 2018 and by 5.2 percent in 2019, the report estimated.

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hg,uhe/tr (Reuters, dpa)

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