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Germany looks to boost growth after gloomy forecast

Germany looks to boost growth after gloomy forecast

German Economy Minister Peter Altmaier said Wednesday Berlin would intervene to lift economic growth after the federal government slashed its forecast for 2019.

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31.01.2019 05:11 PM

German Economy Minister Peter Altmaier said Wednesday Berlin would intervene to lift economic growth after the federal government slashed its forecast for 2019.

"It's about strengthening growth momentum again with smart action from the government," Altmaier told journalists after predicting just 1.0 percent expansion this year, 0.8 percentage points lower than in an autumn outlook.

The official view is even worse than those from the "wise men" council of economic advisors, who in November saw 1.5 percent growth in 2019, or the International Monetary Fund, which last week lowered its own forecast to 1.3 percent.

Gloomier forecasts show officials accepting the reality of a broader slowdown, rather than counting on a rebound from one-off factors that struck in late 2018 -- such as troubles in the car industry and low water slowing shipping along the Rhine.

Nevertheless, "Germany is on course for growth for the tenth year in a row. It's the longest upturn since 1966," Altmaier recalled.

To tackle the growth decline, "we have prepared concrete suggestions without having to call into question the government's fiscal principles" of paying off debt and avoiding deficits, he said.

After years in which federal, regional and local governments have booked massive surpluses -- with a record 59.2 billion euros ($67.7 billion) in 2018 -- tax cuts may be on the way.

The first move could come with a tax break for companies' research and development spending "in the first half of 2019", according to an economy ministry statement.

Another conservative priority is eliminating the so-called "solidarity surcharge" introduced to cover the costs of reunification after 1990.

But Altmaier, a close confidant of Chancellor Angela Merkel, must get any tax-cutting plans past leery coalition partners the Social Democratic Party (SPD).

Global challenges

Berlin's promise of growth-supporting action comes as Germany faces international headwinds to which it can offer only a limited response alone.

Trade conflicts triggered by US protectionism under President Donald Trump have made for a bumpy ride for export powerhouse Germany, whether in a transatlantic EU-US showdown or knock-on effects from Washington's larger confrontation with Beijing.

In 2019, the economy ministry forecasts exports' drag on growth to worsen, to -0.3 percentage points compared with -0.2 last year.

Trump's 2017 tax cut also prompted business organisations and some economists to warn that failing to follow suit could cost Germany valuable investment.

And the growing threat of a disorderly "no-deal" Brexit could disrupt German trade with Britain, its fourth-largest export destination in 2017 with 85.4 billion euros of sales.

British MPs voted Tuesday for Prime Minister Theresa May to seek new concessions from Brussels on the island nation's EU exit agreement.

"The coming days must be used definitively to prevent a hard Brexit," Altmaier said.

At home the picture is rosier for Germany.

The country can continue counting on strong domestic demand, with unemployment expected to fall to 4.9 percent this year after 5.2 percent in 2018 -- the lowest levels since reunification in 1990.

Meanwhile incomes are forecast to rise 4.8 percent in 2019.

Diesel woes

But the country is not immune from growth worries, with the crucial car industry top of Altmaier's list.

The "dieselgate" emissions cheating scandal continues to dog carmakers.

Older diesels face bans from polluted city centres, while carmakers' sales have plummeted in recent months as they struggle to clear vehicles through tough new EU-wide emissions checks.

"I think it's possible to solve the problems" facing the car industry, Altmaier said.

Beyond the immediate challenges, "it's a personal concern of mine that value creation remains in Germany for the long term" in the auto sector, he added.

That means creating conditions for technologies indispensable to future electric-powered and highly automated cars to be developed and produced in Europe, including battery cell production and artificial intelligence (AI).

US and Asian firms currently lead in both fields, Altmaier pointed out, renewing an oft-heard call for an "Airbus of AI" to repeat the pan-European aircraft maker's success in the digital realm.

But while the state can provide support, "the investments and effort must be made by private companies," he urged.
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