BERLIN: The ‘German Council of Economic Experts’ (GCEE) submitted its annual two-year economic forecast, outlining how it expects the German economy to develop in 2017 and 2018.
The five-member council is a formal advisory body established under German law to take stock of the economy and advise the government on economic policy.
The GCEE projects steady growth in Germany’s gross domestic product (GDP) of 1.7 percent in 2017 and 1.6 percent in 2018. For comparison, the actual GDP growth numbers achieved in 2015 and 2016 were 1.5 and 1.8 percent. Steady as she goes, then.
More intriguingly, the council said in a press release that these projected growth rates are above the German economy’s long-run sustainable potential growth rate, and that “the overutilization of production capacities is increasing.”
The implication was that further economic stimulus, delivered either by higher government spending or by continued loose monetary policy in the form of ultra-low interest rates, could generate unwelcome inflation.
“The solution is not for Germany to export less. It’s for Germany to import more,” said Fichtner. “The way to do that is a combination of increasing domestic wages to stoke demand, making more public infrastructure investments, and further improving Germany’s attractiveness to investors.”
If government were to invest more in infrastructure, and businesses were to invest more in production capacity in Germany rather than abroad, then domestic demand would increase, and in the short term, the trade surplus might decline. But in the medium term, Fichtner conceded, the country would probably export even more as a result – and the trade surplus could widen further.
