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The Association of German banks lowers its forecast for economic growth

posted onOctober 4, 2018

A slowdown in investments remains a weak point in the German economic landscape, the Bundesverband deutscher Banken (BdB) said on Thursday. The Berlin-based association of German banks presented its new economic forecast and said it expected Europe’s largest economy to grow by 1.8 percent in 2019, down from its previous estimate of 1.9 percent due to trade frictions and weak emerging markets. 

BdB expects a growth rate of 1.9 percent this year.

“With escalating trade conflicts and the current difficulties in some emerging economies, the world economy faces the threat of sliding toward dangerous territory,” BdB 

Chief Executive Christian Ossig said in a statement. "Nevertheless, we assume that the risks remain manageable" he said adding that despite rising risks, the economy will remain stable next year.

According to Ossig, the significant slowdown in private investment remains a weak spot for the German economy.  "Judging by the companies' earnings, high capacity utilisation, sustained economic growth and  very low interest rates, investments should have been much stronger” Ossig said. For 2019, the chief economists of the private banks in Germany again fear of a significant slowdown in investment.

"We need a generally friendly investment climate and a convincing strengthening of public investment, in particular in the areas of network development and education.” Ossig said.

The association has also lowered its forecasts for private investments in machinery and construction for both 2018 and 2019. It expects investments in machinery to grow by 3.1 percent in 2019, down from a previous forecast of 3.6 percent.

It also said the European Central Bank needed to put an end to its negative interest rate policy as the inflation rate in the euro area will stabilise in 2019 at about 1.75 percent. 

"This is entirely in line with the medium-term inflation target of the ECB," Ossig said.
Germany’s BDI industry association last month also lowered its 2018 growth forecast to 2.0 percent this year, down from a previous estimate of 2.25 percent. 

Five of Germany's leading economic institutes also downgraded their outlook for domestic growth in a joint forecast published last week. Findings were compiled by the Ifo Institute for Economic Research, the German Institute for Economic Research (DIW), the Leibniz Institute for Economic Research (RWI), the Kiel Institute for the World Economy (IfW) and the Halle Institute for Economic Research (IWH) .

According to the study, German gross domestic product (GDP) will expand by 1.7 percent and 2.0 percent in 2018 and 2019. Earlier, the institutes had estimated higher growth rates for the current and coming year of 2.2 and 2.0 percent respectively. 

The German government expects the economy to grow  around 2.0 percent this year, saying companies were not investing enough to achieve higher growth rates because they lacked skilled workers to increase their output.

The Association of German Banks represents more than 200 private commercial banks and eleven member associations. The private commercial banks affiliated to the association compete keenly with one another. They include both big and small banks, banks operating worldwide and banks with a regional focus, universal banks and banks specialising in individual lines of business.