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Institutes warn: IfW and RWI: Economy will shrink in the third quarter

2019-09-11T11:53:06.167Z

TIME ONLINE | News, backgrounds and debates



Kiel (dpa) - According to the Kiel Institute for the World Economy (IfW), the German economy will contract much more sharply in the third quarter than in the previous quarter.

The IfW expects a decline of 0.3 percent compared to the previous quarter, after minus 0.1 percent in the previous quarter, as the institute announced on Wednesday. All in all, the Kiel economists of the largest economy in the Eurozone in 2019 are confident that they will only grow by 0.4 percent. In 2018, the economy in Germany had increased by 1.5 percent.

If economic output falls for two quarters in a row, economists speak of a "technical recession". However, this is only a very mild recession. The situation would be different if the economic output for the whole year shrinks compared to the previous year. However, this is currently not expected. Most recently, this was the case in 2009 as a result of the global financial crisis; since then, the German economy has continued to grow at times with strong growth rates.

The Essen-based RWI Leibniz Institute for Economic Research also expects shrinking economic output in Germany in the third quarter. "In a short-term forecast, we expect minus 0.1 percent," said the deputy RWI economic head Torsten Schmidt the German Press Agency. In the second quarter, the economy had also shrunk by 0.1 percent to the previous quarter.

For the full year 2019, the RWI lowered its forecast to 0.4 percent growth, after 0.8 percent in June. For the coming year, the RWI now expects growth of 0.9 percent instead of 1.4 percent. For the year 2021, the RWI expects economic growth to increase to 1.3 percent. By 2018, the largest economy in the eurozone was able to gain 1.5 percent.

The RWI forecast is based on the assumption that the United Kingdom is withdrawing from the European Union with a withdrawal agreement. "A" hard Brexit "at the end of October would probably have far more serious macroeconomic effects," said Schmidt.

"There are increasing signs that the period of weakness continues and the economy in Germany is going into a downturn," write the scientists in their published on Wednesday economic forecast. In particular, the decline in production in the manufacturing sector, especially in the automotive industry, is continuing. "This increases the risk of the German economy going into recession," emphasized the research institute. By contrast, construction activity and private consumption were robust. The unemployment rate is expected in this year and next year to 5.0 percent and 2021 to 4.9 percent decline.

If economic output falls for two quarters in a row, economists speak of a "technical recession". However, this is only a very mild recession. The situation would be different if the economic output for the whole year shrinks compared to the previous year. However, this is currently not expected. Most recently, this was the case in 2009 as a result of the global financial crisis; since then, the German economy has continued to grow at times with strong growth rates.

Press IfW

Source: zeit

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