Five top German government advisers have warned that the country’s economic growth is set to slow dramatically this year, in what would be a sharp downturn in the fortunes of the euro zone’s economic powerhouse.
The German Council of Economic Experts is a group of economists set up in..
Five top German government advisers have warned that the country’s economic growth is set to slow dramatically this year, in what would be a sharp downturn in the fortunes of the euro zone’s economic powerhouse.
Background
The German Council of Economic Experts is a group of economists set up in 1963 to evaluate economic policies of the German government. In the media, the council is often referred to as the “Five Sages of Economy”, or simply the “Five Sages”.
Every year the Council prepares an annual report which is published before or by November 15. The federal government has to publish its comments and conclusions within eight weeks of the publication of the annual report.
The Council has five members who are nominated by the federal government and appointed by the President of Germany for a term of five years. Every membership expires on 1 March of the term’s final year. Traditionally, the Joint Committee of German Associations in Trade and Industry – including the Confederation of German Employers’ Associations and 14 other leading business associations – and the country’s trade unions each nominate one member of the SVR.
In 2011, the Council had proposed a plan for the issuance of collectivized European debt as part of a mechanism for contending with the European sovereign debt crisis. The Council’s secretariat is based at the Federal Statistical Office of Germany in Wiesbaden, Hesse state in Western Germany.
Analysis
Germany’s top economic advisers have issued a warning that the country’s economic growth is expected to slow this year. This is a sharp turn for Germany, which has been the EU’s economic powerhouse and has provided much of the growth in the post-2009 Recession recovery.
The annual report by Germany’s Council of Economic Experts, an independent group set up to monitor the economy and advise the government, has forecast growth of 1.6 per cent this year and 1.5 per cent in 2019 — markedly worse than 2017’s six-year high of 2.2 per cent. The council’s estimate is worse than that of the government’s in-house economists, which last month cut projections for growth this year from 2.3 per cent to 1.8 per cent because of what Peter Altmaier, economics minister, dubbed “smouldering trade conflicts worldwide”.
“It is a strong correction — in the spring we expected growth of 2.3 per cent this year,” said Lars Feld, one of the council’s five members. He highlighted problems in Germany’s showpiece automotive industry in adjusting to new EU emissions standards and the impact on the business confidence of global trade tensions. “Exports have not been as strong as we thought,” Mr. Feld added.
The council also noted that this year’s growth compared to a strong base: Germany has been in the throes of an unusually strong upswing for several years that has left companies struggling to hire skilled workers and deal with shortages in machinery.
While Mr. Feld said he expected the economy to contract in the third quarter, he noted that growth in Germany had been above trend for the past four years. The third-quarter gross domestic product figures are set to be released next Wednesday. “The downgrade is reasonable,” said Jörg Krämer, chief economist at Commerzbank. “There are big downside risks to the German economy, and all the latest business surveys and confidence indicators have been worse than expected. The automotive industry is struggling to meet the emissions standards and there is also a slowdown in exports to China.”
Mr. Krämer expects GDP to have contracted by 0.1 per cent in the third quarter because of delays by automakers in meeting the new standards, though he expects a bounce in growth in the final quarter of 2018.
Germany’s economic success is built on the strength of its manufacturing exports. While the struggles of the car industry to meet new emissions standards are widely seen as temporary, the sector is exposed to the trade war between Washington and Beijing because of the roles both the US and China play in German supply chains and in vehicle sales.
The German auto sector’s problems are only the latest indicator of a broader slowdown in the eurozone. Growth in the region as a whole fell from 0.4 per cent between the first and second quarter to 0.2 per cent between the second and third. The deceleration comes at a difficult time for the euro zone’s monetary policymakers, who want to ditch one of the most important parts of their crisis-era stimulus by the end of 2018.
Assessment
Our assessment is that the US-China trade war is starting to impact the largely export-based German economy. Germany’s impressive economic performance in the post-2009 Crisis period was driven by large exports to both the US and Chinese markets and the trade war has melted foreign demands and net inflows. We believe that the deceleration is a natural curve for Berlin and we can expect an early stimulus package to inject new money into German markets.
Leave a Reply