Joint Economic Forecast Spring 2017

Upturn in Germany strengthens in spite of global economic risks

April 12, 2017

The German economy is already in the fifth year of a moderate upturn. According to the Gemeinschaftsdiagnose (GD, joint economic forecast) that was prepared by Germany’s five leading economic research institutes on behalf of the Federal Government, capacity utilization is gradually increasing, and aggregate production capacities are now likely to have slightly exceeded their normal utilisation levels. However, cyclical dynamics remain low compared to earlier periods of recoveries, as consumption expenditures, which do not exhibit strong fluctuations, have been the main driving force so far. In addition, net migration increases potential output, counteracting a stronger capacity tightening.

“Gross domestic product (GDP) is expected to expand by 1.5 % (1.8 % adjusted for calendar effects) and 1.8 % in the next year. Unemployment is expected to fall to 6.1 % in 2016, to 5.7 % in 2017 and 5.4 % in 2018”, says Oliver Holtemöller, Head of the Department Macro-economics and vice president of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association. Inflation is expected to increase markedly over the forecast horizon. After an increase in consumer prices of only 0.5 % in 2016, the inflation rate is expected to rise to 1.8 % in 2017 and 1.7 % in 2018. The public budget surplus will reduce only modestly. Public finances are slightly stimulating economic activity in the current year and are cyclically neutral in the year ahead.

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