The German government’s independent economic advisers slashed the growth forecast for the biggest euro area economy, but said a severe recession is unlikely.
“The upswing has come to an end, but a widespread and deep recession is still unlikely,” the German Council of Economic Experts said in its Annual Report 2019/20.
“The weak economic momentum is expected to persist into next year at least.”
Advisers cut Germany’s economic growth forecast for this year to 0.5 percent from 0.8 percent seen in March. The projection for next year was lowered to 0.9 percent from 1.7 percent.
The German economy is set to expand a calendar adjusted 0.5 percent in both years, the report showed.
Monetary policy is very expansionary already and it would have been better if the ECB did not restart its asset repurchases, the report said. The latest stimulus from ECB could entail considerable risks to financial stability, advisers said.
In Germany, fiscal policy is also expansionary and hence, advisers saw no need for an extra economic stimulus package.
“It is instead a matter of allowing the automatic stabilizers to take effect,” the report said.
“The debt brake does not rule out new borrowing for this purpose and leaves scope for increasing public investment.”
The uncertainty surrounding the UK’s exit from EU has exerted a negative impact on Germany and no-deal Brexit would have even more severe consequences, the report said.
“It would therefore still be preferable for the negotiating partners to find a way of preventing Brexit or, if that is not possible, reaching as broad an agreement as possible on the subsequent trading relationship,” the report added.
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