The Federation of German Industries (BDI) yesterday lowered its growth forecast for Europe’s largest economy for this year, citing weaker demand for German goods due to increased business uncertainty caused by US President Donald Trump’s trade policies and Brexit.
The German economy is expected to grow by 2 percent this year, down from a previous estimate of 2.25 percent, BDI president Dieter Kempf said.
Exports would rise 3.5 percent in real terms, below the BDI’s initial forecast of 5 percent, he added.
“The trade policy of US President Trump, but also the approaching Brexit, are dampening investment activity worldwide and with it German export business,” Kempf said.
Weighing into the debate about rising extremism in Germany after footage of violent xenophobic protests in the eastern city of Chemnitz in the past weeks was seen around the world, Kempf said that hate against foreigners and nationalism is harming the nation’s economic self-interest.
The German economy with its export-oriented manufacturing sector and an overall export quota of nearly 50 percent is also facing an increasingly serious threat, Kempf said.
On the one hand, the global economic recovery has reached its peak, leading to less dynamic demand for German machinery and equipment, Kempf said.
“On the other hand, German companies are facing risks with each protectionist measure — even if it is targeted against China,” he added.
China is Germany’s most important trading partner and the US is its biggest single export destination. An escalating tariffs dispute between Washington and Beijing is therefore hitting German exporters as well.
The German growth outlook is also clouded by an impasse in Britain’s negotiations with its EU partners over the conditions of its departure from the bloc in March next year. Britain is Germany’s fifth most-important export destination.
Germany’s economic upswing is in its ninth year and could continue for a while, Kempf said.
“Nevertheless, Germany must prepare for the downturn. We have to take precautions — now,” he added.
His comments chimed with the Ifo Business Climate Survey released on Monday, which showed morale holding steady, even as the manufacturing sub-index dipped and companies scaled back their overall expectations slightly.
Kempf called for lower corporate taxes, higher public investments in education and digital infrastructure, as well as a completion of the EU’s single market by harmonizing rules in areas such as services, energy and digital business.
With deep divisions over migration spilling over into the Chemnitz protests after migrants were blamed for the fatal stabbing of a German man, Kempf issued a warning about how hating foreigners could hit the economy.
“Investments of foreign companies and the integration of skilled workers from other countries contribute significantly to growth and jobs. We are an open society and we want to stay that way,” Kempf said.
In a thinly veiled attack against the far-right Alternative for Germany party, which is gaining popularity in the polls, Kempf added: “An allegedly homeland-loving nationalism that declares everything foreign an enemy is wrong.
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