At the beginning of 2017, the global economy appears rather strong. Business sentiment has risen in many places, and both industrial production and world trade increased at the end of last year. In the U.S. as well as in the euro area, domestic demand further strengthened at the end of 2016.

Since spring 2013, the German economy has been in a long-lasting upswing. Oliver Holtemoeller, Head of the Department Macroeconomics and IWH vice president, expects it to continue. Domestic demand and in particular private consumption are strong, due to the favourable labour market situation. Construction activities of private households will continue to expand, as will those of the local authorities, not least because tax revenues are high. “However, the growth rate of gross domestic product will be 1.6% this year and thus slightly lower than in 2016, due to the lower number of working days. Growth is expected to reach 1.8% in 2018”, Holtemoeller says. At 1.7% both in this year and in the next, the rise in consumer prices will be moderate, though stronger than in the previous three years. Unemployment will decline a bit further. Public budgets continue to generate substantial surpluses, also in cyclically-adjusted terms. The East German economy is, as in the previous year, expected to grow faster than Germany as a whole by two tenths of a percentage point.

Risks to the German economy mainly come from the international political environment.