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Berlin blames trade wars, Brexit for falling growth prospects

Uncertainty from abroad will continue to weigh on the German economy into 2020, Berlin said Thursday as it slashed its growth forecast while hinting that it might budge slightly on long-demanded stimulus measures.

Europe’s largest economy should expand by 1.0 percent in 2020, the economy ministry said, down from a 1.5 percent forecast it made earlier this year.

Thursday’s prediction also falls below the International Monetary Fund’s 1.2 percent outlook, and growth rates of 2.2 percent in 2017 and 1.4 percent achieved last year.

Germany is now the “problem child” of Europe, daily Sueddeutsche Zeitung judged Thursday, with no other industrialised country apart from Italy slated to post such weak economic growth.

Nevertheless, “even if prospects are currently muted, there is no threat of an economic crisis,” Economy Minister Peter Altmaier said.

Altmaier added that he would not call Germany’s cherished balanced budgets into question when pressed by journalists.

“Stimulus packages that cause a flash in the pan are not the correct instruments,” he said, calling instead for a changes to tax and social charges on business to “improve conditions for investment”.

Growth is expected to pick up next year from the 0.5 percent forecast for 2019, he noted, with further increases in employment and wages in sight.

– Tax cuts –

A positive view of the outlook doesn’t free the government from an obligation to “roll up its sleeves”, Altmaier added.

“We need growth-friendly policies with tax relief and reductions in bureaucracy,” he said, as well as investments in future technologies.

Germany is already believed to be in a technical recession — defined as two successive quarters of economic contraction.

National output fell by 0.1 percent in April-June, and July-September figures slated for release next month are expected by the Bundesbank (central bank) to show a contraction as well.

The first recession in nine years would mark the end of a post-2008 golden decade for Europe’s largest economy, which has enjoyed steady growth buoyed by both exports and domestic demand.

Increasing numbers of large firms are announcing layoffs or slashing workers’ hours, job creation is slowing and economic indicators point toward a slowdown.

The country’s massive trade surplus — a source of national pride for many media outlets — has become a target since US President Donald Trump launched his trade war with China.

Closer to home, some good news for Germany came Thursday as Brussels and London appeared to reach a deal on Britain’s departure from the EU, although it must still be approved by UK lawmakers.

There is now “a possibility that the feared negative effects of Brexit can be limited, that there will be additional tailwinds for growth,” Altmaier said.

– Target ‘black zero’ –

With economic headwinds mounting, calls have grown at home and abroad for Germany to ease its “black zero” policy of no new debt, allowing government to spend and stimulate growth.

Foreign partners and international institutions like the IMF have long called on Germany to fork out more.

Germany’s finance ministry says it would be ready to react to a deeper crisis with a spending surge, but does not yet see the situation as bleak enough to justify it.

Opponents of simply throwing more money at Germany’s problems note that even massive government budget surpluses raked in during the good years have not been used up.

“Please, take the money!” finance minister Olaf Scholz told municipalities, federal states and investors last month.

Scholz pointed to 15 billion euros ($16.5 billion) available in green and infrastructure funds and subsidies he said had often been held up by slow or overly complex bureaucratic processes.