However, as Oliver Holtemöller, Vice President of the IWH and head of its macroeconomic department puts it, “worldwide and political risks are substantial”. From his point of view, the combination of the economic slow down in China, the turmoil on financial markets, risks in the European banking sector, decreasing prices in the euro area, and of the European discord on handling the large flow of refugees, might entail a genuine crisis. In particular, shrinking demand of some important Chinese industries might affect the Chinese economy as a whole and the world economy in general. Long-run risks come from interest rates staying very low for a long time and from weak price dynamics in important advanced economies. Low interest rates jeopardize, for example, the viability of life insurance schemes that contain promises of a minimal pay-out. In addition, banks’ profit margins derived from term transformations might vanish if interest rates for all maturities tend to zero. Finally, the economies in the European Union bear the risk of rising political discord: For quite a few years, the case for political disintegration has gained support in many member countries. If this year in June, the British might vote for leaving the Union, the external value of the pound would go down significantly, as would investment in the United Kingdom and perhaps in other member states of the Union as well.

However worldwide and political risks are substantial.

Weak external demand slowed the German economy down in the second half of 2015. Exports to China, for example, contracted. Internal demand, however, kept on expanding healthily. Fixed capital formation was, after an anemic summer, particularly strong at the end of the year, with strong contributions from housing and public investment. Total demand appears to have increased a bit stronger at the beginning of 2016: Industrial production jumped upwards in January, and employment continued to expand strongly. Orders for manufacturing firms, however, have increased by little, and in January and February, firms were more skeptical concerning the future than they were in the final quarter of 2015. Thus, the economy is likely to have a soft patch in the second quarter. For the second half of 2016, we expect demand to regain momentum, because many conditions continue to be quite favorable: Interest rates are very low, the external value of the Euro is – in spite of its recent limited revaluation – quite low as well, supporting the competitiveness of German producers, and both employment and incomes are rising markedly. Additional demand is caused by the high number of refugees, because public transfers are paid, dwellings are built or renovated, and administrative staff is being expanded, while taxes covering these public expenditures will not be raised. This might increase real GDP by about a quarter of a percentage point. Overall, according to this forecast, GDP growth will be at 1.5% in 2016. The consumer price level will, due to the renewed oil price fall and in general very low import price inflation, again be almost constant. Unemployment increases a bit, since a rising number of refugees will get the right to look for work but their integration into the labour market will take considerable time.