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Germany's economy under pressure

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11/08/2018 | 12:02pm EDT

A new report from the German Council of Economic Experts shows that protectionist policies across the globe and Brexit are starting to take a toll on Europe’s biggest economy.

“A less favorable foreign trade environment, temporary production issues and capacity bottlenecks are slowing the pace of expansion”. This is the dire assessment made by German Council of Economic Experts (GCEE)- an independent academic body advising German policymakers on economic policy. In a new report published on November 7, it forecasts real GDP growth rates of 1.6 % and 1.5 %, respectively, for the years 2018 and 2019. This is down from 2.2% in 2017.

Source : German Council of Economic Experts - Click to enlarge

“The uncertain future of the global economic order and unavoidable demographic change represent major challenges to the German economy. This requires setting the right course for economic policy,” said GCEE-Chair Christoph M. Schmidt.

The GCEE recommends that the EU oppose protectionist tendencies and include retaliation measures under WTO rules, as well as setting up new free trade agreements.

On Brexit, it notes that efforts should be made to negotiate a follow-up agreement that minimizes the damage for both sides.” Brexit is an opportunity to focus EU finances on European added value.”

Among other recommendations, the GCEE believes the government should take measures to expand the supply of new houses to combat the high price momentum on the German real estate market. It also stresses that overcapacities in the healthcare system need to be reduced.

Car manufacturers take a hit

This report comes as Germany’s exports have underperformed in the past six months, weighed down by several factors such as trade tensions and new rules on emissions for automakers. According to the Financial Times, new EU greenhouse-gas emissions targets for automakers – which aim to reduce emissions by 30% — have caused a 0.1% contraction in Germany's GDP in the third quarter, raising manufacturing costs for car makers.

And there’s more trouble on the horizon. Germany’s situation could further deteriorate in the event of a no-deal Brexit or if Trump slaps new tariffs on autos as he escalates his trade war...

Romain Fournier
© MarketScreener.com 2018
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