Country Forecast Germany April 2018 Updater

Country Forecast Germany April 2018 Updater

  • April 2018 •
  • Report ID: 472449 •
  • Format: PDF


  • In the September 2017 federal election the centre-right Christian Democratic Union (CDU) won the largest share of the vote. After six months of negotiations a renewed grand coalition of the CDU and the Social Democratic Party (SPD) was installed in March. By agreeing to form another grand coalition the SPD averted the risk of a minority government or a new election.
  • The SPD won significant concessions from the CDU in the negotiations and now controls the ministries of finance, foreign affairs, and labour and social affairs. Nonetheless, the party's public support has continued to fall since its poor election result.
  • Angela Merkel, the chancellor since 2005, is embarking on what will almost certainly be her last term. There will be an increasing focus in the coming years on who might succeed her as the dominant figure on the centre right.
  • The far-right Alternative for Germany (AfD) entered the Bundestag (the lower house of parlia-ment) for the first time at the October election, and is now the largest opposition party.
  • 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 can be expected under Emmanuel Macron, the French president, but significant euro zone reforms are less likely.
  • The Economist Intelligence Unit expects the new government to take a looser fiscal stance. Tax cuts will be combined with greater public investment spending, especially on infrastructure and digital technologies. Nevertheless, we expect the budget to remain in surplus throughout the forecast period (2018-22).
  • We forecast 2.3% real GDP growth in 2018, reflecting strong expansionary conditions in manufacturing and services, with annual average growth moderating to 1.7% in 2019-22. Domestic demand will drive growth, with the tight labour market gradually feeding through to a rise in wage 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 7.6% of GDP in 2017 to just under 6% of GDP in 2022


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