Country Forecast Germany November 2017 Updater

Country Forecast Germany November 2017 Updater

  • November 2017 •
  • Report ID: 325649 •
  • Format: PDF


  • In the September 24th election the centre-right Christian Democratic Union (CDU) won the largest share of the vote and it is now leading negotiations to form a coalition with the liberal Free Democratic Party (FDP) and The Greens. Angela Merkel will thus remain in office as chancellor for a fourth term. Her former coalition partner, the Social Democratic Party (SPD), intends to lead the opposition.
  • The coalition negotiations will be difficult and protracted, given deep ideological differences between the parties. The CDU's smaller Bavarian sister party, the Christian Social Union (CSU), will push for a shift to the right on migration; the FDP will want tax cuts to promote business investment; and The Greens will require material concessions to their environmental agenda.
  • The far-right populist Alternative for Germany (AfD) won almost 13% of the vote in the election, enabling it to enter the Bundestag (the lower house of parliament) for the first time. It will be a fractious presence, liable to in-fighting, and will broaden the range of political views present in the Bundestag.
  • Germany will continue to play a substantial role on the global stage, shaping Europe's response to the actions of the US, Russia and Turkey. Greater Franco-German co-operation and EU reforms are likely under Emmanuel Macron, the French president, but Mr Macron's plans for euro zone reform will face significant resistance in Germany, particularly from the FDP.
  • The Economist Intelligence Unit expects the incoming government to take a looser fiscal stance, after the budget recorded a surplus for the third consecutive year in 2016. Tax cuts will be combined with greater public investment spending.
  • We expect real GDP growth of 2.2% this year and 1.9% in 2018, reflecting strongly expansionary conditions in manufacturing and services, and an average of 1.6% in 2019-22. Domestic demand will continue to drive growth, but private consumption will lose momentum slightly as rising inflation offsets the gains to real incomes from a tightening labour market.
  • We estimate consumer price inflation at 1.7% in 2017, driven by higher global energy prices, and forecast an annual average of 1.7% in 2018-22 as domestic demand pressures rise gradually, balancing out weak energy price growth.
  • Germany's large, and often controversial, current-account surpluses will persist, although we expect them to decline gradually in 2018-22 as import demand strengthens, from 8.3% of GDP in 2016 to 5.4% in 2022.






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