Skyline of Frankfurt, Germany. Picture: THINKSTOCK
Skyline of Frankfurt, Germany. Picture: THINKSTOCK

Berlin — The German government cut its forecast for 2019 economic growth for the second time in three months on Wednesday, reflecting a worsening slowdown driven by a recession in manufacturing.

German exporters are struggling with weaker demand from abroad, trade tensions triggered by US President Donald Trump’s “America First” policies and business uncertainty caused by Britain's planned departure from the EU.

The difficult trade environment means that Germany’s vibrant domestic demand, helped by record-high employment, inflation-busting pay increases and low borrowing costs, is expected to be the main driver of growth 2019 and next.

The government now expects GDP to grow 0.5% in 2019 economy minister Peter Altmaier told reporters as he presented the spring forecast. For 2020, the government now envisages a consumption-driven rebound with economic expansion of 1.5%.

In January, the government cut its forecast to 1.0% growth from 1.8% previously.

Altmaier said the slowing world economy, trade disputes and Brexit uncertainty were weighing on the German economy. Domestic factors include the introduction of new car-emission regulations and unusually low Rhine water levels, which have led to supply and production bottlenecks.

Import growth is expected to surpass export growth in both 2019 and 2020, which is likely to reduce the large trade surplus further.

“The current account surplus will continue to shrink continuously and will go down to 6.4% [of GDP] in 2020,” the economy ministry said in its spring forecast.

Government measures such as higher child benefits and increased pensions for mothers will give the economy an additional boost in 2019 , Altmaier said.

He called on the centre-left Social Democrats, the junior partners in Chancellor Angela Merkel’s governing coalition, to support tax cuts for companies and agree on refraining from any measures that could burden the private sector.

While rejecting calls from allies for consumption-oriented fiscal stimulus, Altmaier said the government should now focus on supporting companies by cutting red tape and lowering corporate levies.

Germany’s BDI industry association urged the government to set more incentives for climate-friendly corporate investments and to slash taxes for companies.

“The best times for the economy are over,” BDI MD Joachim Lang said. “The government may not lose any more time.”

Finance minister Olaf Scholz told the world’s financial elite gathering in Washington last week that Berlin is already spending its record budget surplus on investment in infrastructure and support for families with low or medium incomes.

In an interview last Wednesday, Scholz said that Germany would use parts of its budget surplus to support corporate research and development with incentives worth €1.25bn annually, without a time limit.

Reuters