Trade Tensions Take a Toll on Germany's Economy
11 October 2018 - 4:07PM
Dow Jones News
By Andrea Thomas
BERLIN -- Germany slashed its economic growth forecast, invoking
a shortage of skilled workers at home and global trade tensions
aboard, a fresh sign that the European powerhouse is increasingly
vulnerable to U.S.-China trade disputes.
Germany's decadelong economic upswing is projected to continue
because of strong domestic demand, but the world's third-largest
exporter of goods -- after China and the U.S. -- is becoming more
exposed to the unfolding trade dispute between Washington and
Beijing, the government said.
The decision marked the latest indication of how President
Trump's campaign to rewrite the terms of international trade to the
U.S.'s advantage is reshaping the global economy. He also
threatened Europe with higher tariffs on imported cars, a move that
would hit Germany's flagship industry hard.
German gross domestic product is now expected to grow 1.8% this
year instead of 2.3% as previously forecast, and 1.8% against next
year instead of 2.1%, according to the government's fall economic
outlook. Output expanded 2.2% last year.
"The German economy is still in a strong upswing and will
continue to expand for the 10th consecutive year next year, the
longest period of growth since 1966," said Economics Minister Peter
Altmaier.
But, he said, "we could have considerably higher growth if...the
German economy could expand at its potential growth rate...It has
become increasingly difficult to find the necessary skilled
workers."
While domestic demand is set to continue to support the economy,
"mounting protectionist tendencies and international trade
conflicts" were creating uncertainty, he said. "They harm all
parties involved."
Mr. Trump has imposed tariffs on about half of the $505 billion
that the U.S. imported from China in 2017. He has threatened to hit
the other half with levies too.
German exports have fallen in three of the first four months of
the year, manufacturing orders are down, and sentiment indicators
are deteriorating fast.
In its outlook, the German government said exports are set to
grow 2.8% this year from 4.6% in 2017 amid weaker global demand,
before picking up pace again and rising 3.7% next year.
"Uncertainty around trade will weigh on business and consumer
sentiment, potentially leading companies and consumers to postpone
investment and consumption," said Moody's analyst Ruosha Li in a
note. "As investors require higher risk premiums to compensate for
rising uncertainty, companies may delay investment and refinancing
costs will rise."
Others struck a more positive note, noting that the downward
revisions were partly due to adjustments made to earlier data.
"GDP growth of close to but below 2% in the 10th and 11th year
of a long expansion is still remarkable and strong," said ING
economist Carsten Brzeski.
The government said the economy would add 1 million new jobs in
2019 compared with 2017, bringing total employment to 45.3
million.
Earlier this week, the International Monetary Fund cut its
growth forecasts for Germany to 1.9% for both this year and next,
down 0.3 and 0.2 percentage point, respectively.
Write to Andrea Thomas at andrea.thomas@wsj.com
(END) Dow Jones Newswires
October 11, 2018 10:52 ET (14:52 GMT)
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