The Ifo said in a report today that “Storm Clouds Gather Over German Economy“. It said, the upswing since last year has “lost impetus” and “international economic risks in particular have growth significantly.
German GDP growth is expected to slow from 2017’s 2.2% to 1.8% in 2018 and 1.8% in 2019. That’s notable downward revision from Spring forecasts of 2.2% in 2018 and 2.0% in 2019.
Inflation, though, is projected to climb from 1.8% in 2017 to 2.0% in 2018 and 2.1% in 2019. That’s upward revisions from Spring forecasts of 1.7% in 2018 and 1.9% in 2019.
Even after the downward revision in growth projection, Ifo noted that downward risks have “increased significantly”. In particular, it singled out the US as external risk. It pointed out “in June 2018 the USA introduced tariffs of 25% on steel and 10% on aluminium imports from Canada, Mexico and the European Union. Although the long-term effects of these tariffs are relatively weak, the USA is currently considering whether it should introduce a tariff on imported cars too. Overall, this would lead to considerably higher GDP losses. At the same time, the EU and China have announced retaliatory tariffs, meaning that the introduction of further trade barriers is no longer a negligible risk.”
In addition, Ifo pointed to US triggered supply side driving oil price surge as another risk. It noted, “the increase in oil prices up until the beginning of this year were largely demand-side driven. Since then friction between the USA and Iran have promoted a supply-side in-crease in oil prices, which is likely to have a dampening impact on the world economy. If the pressure from the US government on the EU were to become so great that the EU revoked the nuclear agreement, oil prices would continue to rise and curb growth in world production.”
