German central bank slashes 2020 growth outlook

FRANKFURT AM MAIN (AFP) – Germany’s central bank yesterday slashed its 2020 growth forecast for Europe’s largest economy in half, but said an export-powered rebound was on the cards in the following years. The Bundesbank predicted 0.6 per cent expansion next year, half the pace it had reckoned with in its last outlook in June.

That represents little change from the expected 0.5 per cent reading for 2019, one third of last year’s rate. But in 2021-22 growth should pick back up to around 1.4 per cent.

“Along with noticeably supportive fiscal policy, very expansive monetary policy and above all exports will be vital to the improved economic prospects,” Bundesbank President Jens Weidmann said in a statement.

Export-dependent German manufacturers above all have in recent months suffered from slowing global growth and trade and increased uncertainty over United States (US)-led trade conflicts and Brexit. Meanwhile the powerhouse economy has enjoyed low unemployment and a strong services sector, although economists point to signs industrial weakness is beginning to spread to other areas.

Boris Johnson’s resounding victory in British parliamentary elections on Thursday could reduce one element of uncertainty.

The Conservative leader many now have the necessary freedom of manoeuvre to see through Brexit and strike a trade deal with the European Union (EU) after Britain’s departure.

A decisive outcome in the United Kingdom (UK) would mean “an element of uncertainty which is probably loosening and will give us a bit more clarity,” European Central Bank President Christine Lagarde said.

In her maiden press conference, she also pointed more generally to “initial signs of stabilisation in the growth slowdown” that has sapped Europe in recent months.

And even as Lagarde was speaking, US President Donald Trump tweeted that he was “getting VERY close to a BIG DEAL with China”, powering American stock markets to new highs.

Bundesbank chief Weidmann nevertheless warned Friday that “there remain sources of economic danger from abroad that could prolong and worsen the industrial downturn”.