IMF cuts German 2018 economic growth forecast to 2.2 percent due to the effects of rising protectionism and Brexit

  • The International Monetary Fund cut its 2018 forecast for German GDP growth to 2.2 percent, saying rising protectionism and the threat of a hard Brexit had exposed Germany's economy to significant short-term risks.
  • Given Germany's rapidly aging society, IMF directors recommended further expanding public investment in infrastructure and education as well as setting more incentives for private investments in order to bolster productivity growth, further lift long-term output, and reduce Germany's large current account surplus.
Germany's Chancellor Angela Merkel reacts as she speaks with European Council President Donald Tusk (L) and Spain's Prime Minister Pedro Sanchez (R).
Ludovic Marin | AFP | Getty Images
Germany's Chancellor Angela Merkel reacts as she speaks with European Council President Donald Tusk (L) and Spain's Prime Minister Pedro Sanchez (R).

The International Monetary Fund (IMF) on Thursday cut its 2018 forecast for German GDP growth to 2.2 percent, 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 percent, edged its 2019 forecast up to 2.1 percent from 2.0 percent.

"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 percent of economic output last year from 8.5 percent in 2016, but is expected to rise again to 8.3 percent this year, the IMF said.