Forecasted GDP has been cut to 0.8 percent for 2019, the second reduction in less than two months, German business daily Handelsblatt has reported, citing a Government document. The German Government had already cut growth expectations for this year in January from 1.8 percent to one percent. The eurozone’s biggest economy, valued at more than £3trillion, has been hit by a weakening global economy, the escalation of various trade wars and political uncertainty throughout Europe, particular around Brexit.
Slowing growth could result in tax revenues being lower than expected this year, increasing tensions in Chancellor Angela Merkel’s coalition government over spending priorities.
This latest downgrade in the nation’s economic growth for this year came after Germany’s Statistics Office said industrial output dropped 0.8 percent in January – well below market expectations for a 0.5 percent rise.
This follows bleak forecasts from the Economic Cooperation and Development (OECD) on Wednesday, which lowered its growth forecast for Germany to 0.7 percent, a cut of 0.9 percentage points.
Separate data from the Economy Ministry showed car production plunged 9.2 percent in January.
The slowdown saw Germany’s 10-year bond yield, the benchmark for the country, slip one basis point to 0.06 percent in early morning trading.
It hit a 26-month low of 0.048 percent last week after the European Central Bank delayed imposing its first post-crisis rate hike, instead offering banks new round of cheap loans to help revive the eurozone economy.
Antoine Bouvet, a strategist at Mizuho Bank, said: “Industrial production is hard data and it is really cementing the impression that the European economy is slowing down.
“It is lending credibility to the view that the slowdown is not temporary.”
ING economist Carsten Brzeski added the sharp revisions of monthly data, stabilising domestic orders and solid fundamentals suggested the industrial slowdown was reaching its low point.
However, he warned: “But if the search for a bottom takes too long, the German government should start considering additional fiscal stimulus.”
Sophia Krietenbrink from the DIHK Chambers of Industry and Commerce said: “The headwinds from abroad are hitting the German economy particularly hard.”
The huge car production drop in the particularly lucrative market for Germany – home to the likes of Volkswagen, Audi, BMW and Mercedes—Benz – is of particular concern.
German carmakers are also being heavily impacted by a production slowdown in China, a plunge in demand for diesel vehicles and expensive investments in electric cars and self-driving cars.
The combination of this morning’s latest gloomy figures means the German economy is likely to post only meagre growth in the first quarter of this year after barely avoiding recession – defined as two consecutive quarters of contraction – in the second half of last year.
In a further blow, Germany’s economy minister last week Peter Altmaier warned a no deal Brexit could put thousands of jobs at risk in Europe.
Figures from Statista forecasted 102,900 German jobs could be threatened – the highest amount of any country – if the UK leaves the European Union without a withdrawal agreement.
German carmakers are becoming increasingly concerned a hard Brexit would blow a hole in their industry, with thousands of workers potentially losing their jobs.
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