Ifo Economic Forecast Shows Strengthening German Economy

At least one of the world’s largest economies has prospects better than expected. As the Federal Reserve dropped its forecast for the U.S. economy from gross domestic product (GDP) of 2.2% to 2.0% and held rates firm, the Ifo Economic Forecast for Germany showed an acceleration of the fourth largest economy measured by GDP for the second half of 2016 and all of 2017.

Ifo experts wrote:

The robust upturn seen in the German economy since 2014 will continue. The Ifo Institute expects real gross domestic product to grow by 1.8% this year and by 1.6% in 2017. This would further reduce the output gap, which will almost close next year.

Since the overall pace of the economy is moderate, however, there are no signs of overheating in the domestic goods and factor markets. Buoyant domestic demand is a key driver of growth. Private consumption expenditure is rising against a background of more favourable developments in employment and higher transfer income. Prolonged, favourable financing conditions are also providing positive stimuli for investment in equipment and construction. In addition, the continuing migration of refugees is also boosting demand for residential construction. No noteworthy impetus is expected to come from international trade over the forecasting period, in which exports and imports will grow at a similar pace. Within the context of positive overall economic developments, the positive basic trend in the German labour market will continue, although the dynamic may not remain quite as strong as in recent months.

[nativounit]

Two things are notable. Despite the better outlook, GDP is still expected to increase by a very modest 1.6% in 2017. And there was no mention of the effects of “Brexit,” a process that would largely separate the U.K. economy from the European Union. Many experts expect financial damage from the process. And Germany and the United Kingdom enjoy a favorable trade relationship that might end.

Despite the headwinds of a global economy that is weak overall and the potential partial breakdown of its relationship with the United Kingdom, Germany’s economy apparently will move ahead nicely.

[wallst_email_signup]