German institutes optimistic on growth outlook

Thursday 10 April 2014 10.49
German GDP predicted to expand by 1.9% in 2014
German GDP predicted to expand by 1.9% in 2014

Germany's leading economic think tanks raised their growth forecast for Europe's top economy this year and next year, but warned of headwinds from new government policies.

The four institutes, Ifo in Munich, DIW in Berlin, IW in Halle and RWI in Essen, predicted that German GDP would expand by 1.9% in 2014, up from 0.4% in 2013, and then grow by 2% in 2015.

They also said that doubts over the nature of European Union-Russian relations in the wake of the Ukraine crisis posed a risk to its German growth scenario, and sanctions on capital flows and oil exports would hit both Germany and Russia.

Although emerging market currencies had stabilised since the start of the year, the institutes noted that the Russia-Ukraine conflict could trigger capital outflows and currency devaluation, threatening the global economy.

In their bi-annual report on the German economy, the institutes also warned that German government policies such as retirement from the age of 63 and the introduction of a minimum wage created a "headwind" for growth, and uncertainties over Germany's switch to renewable energy stalled investment.