IMF cuts German 2018 economic growth forecast to 2.2%

German Chancellor Angela Merkel (CSU) reacts at the EPP (European Parliament Presidents) meeting in Munich, Germany June 6, 2018. (Reuters pic)

BERLIN: The International Monetary Fund (IMF) on Thursday cut its 2018 forecast for German GDP growth to 2.2%, saying rising protectionism and the threat of a hard Brexit had exposed Europe’s biggest economy to significant short-term risks.

The Washington-based lender, whose previous prediction from April was 2.5%, edged its 2019 forecast up to 2.1% from 2.0%

“Short-term risks are substantial, as a significant rise in global protectionism, a hard Brexit, or a reassessment of sovereign risk in the euro area, leading to renewed financial stress, could affect Germany’s exports and investment,” it said in a report.

President Donald Trump has announced tariffs on a wide range of U.S. imports that threaten to unleash a global trade war, and London and Brussels remain at odds over the terms of Britain’s looming departure from the European Union.

The IMF welcomed plans by Chancellor Angela Merkel’s new coalition government to raise public investments and support long-term growth, but it said Berlin could do more.

Given Germany’s rapidly ageing society, IMF directors recommended further expanding public investment in infrastructure and education as well as setting more incentives for private investments.

“Such measures would bolster productivity growth, further lift long-term output, and reduce Germany’s large current account surplus,” it said.

The surplus fell to 8.0% of economic output last year from 8.5% in 2016, but is expected to rise again to 8.3% this year, the IMF said.