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Germany Lifts Economic Outlook, But Says Better Is Needed

Fergal O'Brien and Birgit Jennen

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Germany’s government raised its growth projection for this year and pledged investment to keep Europe’s largest economy competitive as it turns more digital and climate-aware, and its population ages.

The administration’s first major assessment this year comes amid signs that Germany is putting the worst of its troubles behind it. A car industry slump and a manufacturing recession held expansion to just 0.6% last year, the weakest since 2013.

The government now sees the expansion improving to 1.1% in 2020 -- up from 1% previously -- and 1.3% in 2021, but Economy Minister Peter Altmaier said it needs to be better.

“Current growth can’t be considered satisfactory,” he said. “We have to strengthen growth, competitiveness and productivity. Only then we will see the necessary investments in the future.”

Chancellor Angela Merkel’s government highlighted a spending plan allocating more than 160 billion euros ($176 billion) through 2023 in areas such as digital infrastructure and transportation. While welcome, that falls short of the scale of fiscal stimulus many say the country needs to bolster growth.

The country’s comfortable fiscal position -- it’s run surpluses for the past six years -- has given critics of Germany spending policy even more reason to make demands. But an improved economic outlook will allow Merkel to push back against such demands, and may also help her hold together a coalition that has begun to fray.

The new projections are in line with last week’s update from the International Monetary Fund, which also noted that the reduction in trade tensions between the U.S. and China is good for global growth.

While Germany predicts strong consumer spending and a pickup in exports, trade is still a major risk. President Donald Trump is keeping alive the threat of levies on European Union cars as the U.S. and Europe clash over issues from agriculture to digital taxes. Germany’s auto industry is already in the midst of a generational upheaval as it tries to shift toward electric vehicles.

On top of that, the global backdrop so crucial to Germany’s export-dependent economy is facing a new threat from the outbreak of the deadly coronavirus.

Economists are a little less confident in the outlook than the government. In a survey this month, they predicted 0.6% German growth in 2020, though the quarterly pace will improve in the second half of the year.

If the pessimists wanted reason to doubt, a drop in business expectations in January was a reminder that the recovery won’t be plain sailing. On the positive side, however, that report also showed expectations in manufacturing, hugely important for Germany, rose for a fourth month.

In its report, the government also took a stance on European Central Bank policy. While it noted financing conditions for companies and households are very favorable, it also pointed to risks for banks and financial markets as well as dangers of asset-price bubbles as a result of negative interest rates.

(Updates with 2021 GDP forecast)

To contact the reporters on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net;Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, ;Ben Sills at bsills@bloomberg.net, Jana Randow, Raymond Colitt

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