Germany sees 'first silver lining' as Berlin raises growth forecast

Germany has raised its forecast for economic growth in 2020, and coalition parties should now help companies to increase investment by cutting corporate taxes, Economy Minister Peter Altmaier said on Wednesday.

Berlin expects gross domestic product to grow 1.1% this year, up from a previous estimate of 1.0%, Altmaier said, citing an improved trade outlook and strong domestic demand.

“After a temporary phase of weakness, the first silver lining can now be seen,” Altmaier said. Industrial production would recover slowly during the as international trade tensions eased, he said.

For 2021, the government now sees growth of 1.3%, down from its previous estimate of 1.5%, Altmaier added.

Germany’s export-dependent manufacturers are struggling with a slowing world economy, trade disputes, Brexit uncertainty and structural problems in the car industry.

Domestic demand is expected to drive overall growth again this year as German consumers benefit from record-high employment, rising wages and low borrowing costs.

The growth forecast chimed with surprisingly strong data released earlier on Wednesday that showed German consumer sentiment improved heading into February.

German growth will be helped by an unusually high number of working days this year, leaving a calendar-adjusted expansion rate of 0.7%. This follows growth of 0.6% last year, which was the weakest since the euro zone crisis in 2013.

Altmaier, an ally of conservative Chancellor Angela Merkel, said the government should now improve the conditions for private-sector investment by cutting corporate taxes, reducing other duties and limiting ancillary wage costs.

Finance Minister Olaf Scholz, from the co-governing Social Democrats has insisted, however, that the government should use any additional fiscal room for spending on infrastructure and education. Senior members of the coalition parties will meet later on Wednesday to discuss the matter.