Germany trims 2015 growth outlook as emerging markets slow

[BERLIN] The German government Wednesday slightly trimmed its 2015 growth forecast due to the slowdown in emerging economies, but said domestic consumption would likely more than offset the external weakness.

Output growth was now expected to reach 1.7 per cent for 2015, and 1.8 per cent for 2016, said Economy Minister Sigmar Gabriel, who six months ago had predicted growth for both years at 1.8 per cent.

Mr Gabriel said the German economy was expected to power ahead as strong domestic consumption outweighs "gloomier global growth outlook due to slowing growth in China and in raw materials-rich emerging countries".

However, "the biggest challenge for Germany is the high numbers of refugees migrating here from crisis zones," said Mr Gabriel, who is also vice chancellor.

"Given the coming winter, these people must be quickly given humane lodgings" and be integrated into society, he said.

"On this, investments in education and training are key," said Mr Gabriel.

Germany is expecting to host between 800,000 and 1 million new arrivals this year, and local authorities are struggling to cope with the sudden surge.

But the government has said its economy is solid enough to absorb the newcomers.

Mr Gabriel outlined strong economic fundamentals, with wages expected to rise 2.6 per cent this year and 2.4 per cent next year.

Unemployment is expected to fall this year by 98,000 from 6.4 per cent in September, the lowest level since German reunification in 1990.

Next year, despite the massive migrant influx, the forecast is for unemployment to rise only by 60,000.

Larger incomes have also fueled more spending, as "consumption from private households grows as never before as the main stimulus for Germany's growth", said Mr Gabriel.

Germany's vital export industry is also benefitting from a weak euro, said Mr Gabriel, predicting that demand would post "solid growth" in both 2015 and 2016.

Following a lull in growth last year, the German economy expanded strongly in the fourth quarter, lifting output for the whole of 2014 to 1.6 per cent.

AFP