In World Economy News 16/04/2015
Four leading German economic institutes have raised their growth forecast for Germany’s economy because of falling oil prices and a weak euro.
The country’s economy – the largest in the eurozone – will grow by 2.1% this year, the institutes said in a report.
In the autumn they had predicted 1.3% growth and warned that the economy was “stagnating”.
In 2014 as a whole, Germany’s GDP was 1.5% higher than in the previous year, according to official figures.
“The German economy is experiencing a strong upturn driven by unexpected expansive impulses, especially the falling oil price and the sharp depreciation of the euro,” CES Ifo Group Munich said.
Timo Wollmershaeuser, chief economist at the Ifo Institute, said: “The low oil price leaves the Germans more money for consumption, and the low euro is pushing exports.”
The Ifo Institute was one of four institutes that wrote the annual spring forecast.
The joint paper said that “consumption is the driving force behind the upturn”.
Tax reform call
In addition it said “the rest of the euro area is also expected to produce slightly positive impulses, meaning that international trade will contribute to growth.”
The bodies called for lower taxes for small businesses after a prediction of public budget surpluses of €20bn euros (£13bn) this year and next.
“The tax wedge between labour costs and net wages, created by contributions to the pay‐as‐you-go social security system and income tax, is among the highest of all OECD countries in Germany,” they said.
“The income tax rate above all – especially for small and medium‐sized companies – should therefore be made more performance‐oriented to reduce the labour factor burden and thus to increase Germany’s growth potential.”
This suggestion is unlikely to gain traction in Berlin, as the ruling coalition of conservatives and Social Democrats has an agreement not to raise or lower taxes, but to use any leeway to boost investment.
