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Bundesbank slashes German growth forecasts on industry's plight

Key Points
  • The Bundesbank now sees 2019 GDP growth in the euro zone's biggest economy at 0.6%, well below the 1.6% it forecast in December.
  • Inflation this year is still expected at 1.4% but the bank lowered the 2020 projection to 1.5% from 1.8%, well below the ECB's target of close to but below 2%.

The Bundesbank slashed its growth projections for Germany on Friday, saying industrial groups in the euro zone's biggest economy would suffer from weak demand through the rest of the year.

Having been Europe's engine of growth for years, Germany is now the biggest drag on the bloc, threatening to derail the euro zone's long and protracted recovery from years of crisis as a global trade war exacerbates its troubles.

Kai Pfaffenbach | Reuters

The European Central Bank took the prospect of an interest rate hike off the table on Thursday and said it could even cut its already record rates or restart a massive asset purchase programme given weak grwoth.

The Bundesbank now sees 2019 GDP growth at just 0.6%, well below the 1.6% it forecast in December and it expects growth rebounding only to 1.2% next year, short of the 1.6% projected earlier.

"The German economy is currently experiencing a marked cooldown," the central bank said in a biannual update of its projections. "This is mainly due to the downturn in industry, where lacklustre export growth is taking a toll.

The bank also warned that while it did not expect a more protracted decline in output, risks were still skewed toward a more negative outcome than its projections.

"For economic growth and, to a lesser extent, for the rate of inflation, it is the downside risks that predominate as things stand today." 

Inflation this year is still expected at 1.4% but given the weak growth, its rise will be much slower than earlier thought, the band said. 

It now sees 2020 inflation at 1.5%, below the 1.8% seen in December and also well short the European Central Bank's target of close to but below 2%.