The Ifo Institute yesterday cut its growth forecast for Germany this year and said a recession would hit Europe’s largest economy in the third quarter, the latest gloomy forecast that raises pressure on the European Central Bank (ECB) to loosen policy.
The ECB unveiled fresh stimulus measures yesterday to prop up the ailing eurozone, a decision that underwhelms market risks, pushing up borrowing costs.
Ifo cut its growth forecast for Germany this year to 0.5 percent from 0.6 percent.
It also said the German economy would probably shrink by 0.1 percent in the third quarter, which would amount to a recession after a similar contraction in the April-to-June period.
“The outlook is weighed down by high uncertainties,” Ifo senior economist Timo Wollmershaeuser said, pointing to possible risks to the economy from a no-deal Brexit and an escalation of US President Donald Trump’s trade disputes.
The German economy has weakened as its export-dependent manufacturing sector languishes in recession due to trade conflicts and uncertainty linked to Britain’s departure from the EU.
Ifo said that the manufacturing sector’s weakness is gradually spreading to other parts of the economy, including logistics and the services sector, leaving a mark on the labor market.
The institute expects a slight recovery in the fourth quarter.
It said that its forecasts were based on the assumption that there will be neither a no-deal Brexit nor an escalation Trump’s trade conflicts, which would suggest even weaker growth in Germany should either of these materialize.
For next year, Ifo cut its growth forecast to 1.2 percent from 1.7 percent.
Germany’s Macroeconomic Policy Institute earlier yesterday said there was an almost 60 percent chance that the economy could fall into recession.
The Kiel Institute for the World Economy on Wednesday slashed its growth forecasts due to trade disputes and Brexit uncertainty.