KfW Business Cycle Compass Germany: growth momentum will peak in 2018 and dip moderately in 2019

Frankfurt am Main (ots) -

- KfW Research confirms growth forecast of 2.5% for this year,
expects rate to drop to 1.9% next year
- Consumption, investment and exports are drivers of growth
- Tighter labour market and interest rate reversal will slow
growth in 2019

In the final quarter of 2017 the German economy continued to grow
at a fast pace despite an unusually high number of holidays and
bridging days. It is set to carry this momentum over into the year
2018. KfW Research therefore maintains its economic forecast of 2.5%
growth for this year, after 2.2% in 2017 (all rates not adjusted for
calendar variations). The growth momentum should thus reach its peak
this year before slowing moderately in the year 2019, for which KfW
Research expects robust GDP growth of 1.9%. The lower rate will
likely be driven by increasingly higher capacity utilisation levels
as a result of the long duration of the upturn, particularly on the
labour market, and the interest rate reversal.

The current strength of the German economy not only reflects
historically high business confidence levels; it is also demonstrated
by hard data such as incoming orders in the manufacturing sector.
Industrial output is showing signs of significant expansion.
Continuing workforce growth (+1.5% in 2017 on the previous year) and
rising real wages (+0.8% in 2017 on the previous year) are benefiting
consumption. This trend is showing no signs of abating any time soon.
Given the continuing high need for housing in attractive
conurbations, the prospects for residential construction also remain
positive. At the same time, corporate investment remains on a growth
path on the back of strong industrial capacity utilisation and robust
increases in demand from international markets. The recovery of the
global economy should provide impetus for German export growth
irrespective of the recent euro appreciation.

Growth is likely to decrease slightly in 2019 but continue at a
solid rate of 1.9%. The global interest rate reversal that has begun,
combined with a growing scarcity of skilled labour, is expected to
slow growth momentum slightly as many businesses are likely to bring
planned investments forward to 2018 in anticipation of rising
borrowing costs. A significant slowdown in growth in 2019 is unlikely
given the next German government's fiscal policy. The new grand
coalition is planning additional expenditure and revenue shortfalls
of just under EUR 46 billion for the period between 2018 and 2021
which, spread out across individual years, represents an average 0.3%
of GDP.

KfW Research estimates that the risks which have existed for the
German economy for some time already - the bumpy Brexit negotiations
and the protectionist tendencies of US policy - have been compounded
by increased volatility in the capital markets and possible downward
pressure from an unexpectedly strong euro. It regards the latter as a
plausible scenario if the US measures are overestimated and the tax
reform and additional spending increase the public deficit but not
growth.

"The German economy continues to present itself in robust shape.
Its growth since 2014 has been above the long-term trend rate. The
strong upswing is continuing this year and next year as well", said
Dr Jörg Zeuner, Chief Economist of KfW Group. He added that there was
no likelihood of the economy dangerously overheating any time soon.
"For one thing, the initial capacity underutilisation resulting from
the global financial crisis in 2009 and the euro crisis of 2012/13
was enormous, and for another, prices and wages in particular would
have to increase much more drastically than is generally expected."

The current KfW Business Cycle Compass is available at:
www.kfw.de/konjunkturkompass

Contact:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Christine Volk,
Tel. +49 (0)69 7431 3867, Fax: +49 (0)69 7431 3266,
E-Mail: Christine.Volk@kfw.de, Internet: www.kfw.de

Original-Content von: KfW, übermittelt durch news aktuell