German institutes slashes growth forecast as industry orders tumble

Germany's leading economic institutes slashed their forecasts for 2019 growth by more than half on Thursday and warned growth could slow much further if Britain quits the European Union without an agreement.

Separately, data from the Economy Ministry showed industrial orders fell in February, by 4.2 per cent – their biggest drop in more than two years – as foreign demand slumped. That confounded expectations for a 0.3 per cent increase.

The institutes cut their overall forecast for this year to 0.8 per cent from a previous 1.9 per cent and said risks had increased since autumn. They pointed to Britain’s expected departure from the EU and trade conflict between the United States and China.

Germany has long been the euro zone’s economic powerhouse, but it narrowly skirted a recession at the end of last year and posted its weakest growth in five years in 2018.

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The forecasts were completed by March 29th, the date Britain was originally due to leave the EU, when the institutes assumed it would not quit without an agreement on the terms. The deadline has since been extended to April 12th.

The institutes’ estimates feed into the government’s own growth projections, which will be updated later this month. In January, the government forecast growth of 1 per cent for this year.

"The long-term upswing of the German economy has come to an end," Oliver Holtemoeller, one of the economists involved in the report, said.

Economy minister Peter Altmaier said the economic slowdown Germany saw during the second half of 2018 would be overcome during the course of this year and replaced by an economic upswing.

The Economy Ministry revised the orders figure for January to show a decline of 2.1 percent.

"Awful new-order data suggests that German industry is still suffering from Brexit woes and global uncertainties," said ING economist Carsten Brzeski.

- Reuters