Trump, Brexit hit German growth, xenophobia also a threat
* Industry association sees GDP growth of 2 pct this year
* Below BDI's previous growth forecast of 2.25 pct
* Trump's trade policies, Brexit create business uncertainty
* Companies are therefore holding back investments
* BDI: Germany must now prepare for next downswing
(Adds Merkel, Azevedo)
By Michael Nienaber and Gernot Heller
BERLIN, Sept 25 (Reuters) - Germany's BDI industry
association on Tuesday lowered its 2018 growth forecast and
warned of a potential downturn, citing weaker demand for German
exports due to U.S. trade policy and Brexit, as well a threat to
the economy from xenophobia at home.
The German economy is now expected to grow by 2.0 percent
this year, down from a previous estimate of 2.25 percent, BDI
President Dieter Kempf said. Exports will rise by 3.5 percent in
real terms, below an initial forecast of 5 percent.
The predictions of slower growth were reinforced by
Germany's economic institutes. Two government sources familiar
with a report to be released later this week said the institutes
would cut their 2018 forecast to 1.7 percent from 2.2 percent.
In an unusually strong intervention into domestic politics,
the BDI's Kempf warned that the German economy could be hurt by
a wave of nationalism, after violent protests in the eastern
city of Chemnitz that followed a stabbing blamed on migrants.
"An allegedly homeland-loving nationalism that declares
everything foreign an enemy is wrong," he said. "It poses a
threat to the business model of our industry which is based on
openness - and it's jeopardising prosperity and employment."
While Europe's biggest economy has been growing for nine
years and could continue expanding, Kempf said it was urgent
that Germans now take steps to prepare for the possibility of a
downturn: "We have to take precautions - now."
The BDI called for lower corporate taxes, higher public
investment in education and digital infrastructure as well as a
completion of the European Union's single market by harmonising
rules in areas such as services, energy and digital business.
"The trade policy of U.S. President Trump, but also the
approaching Brexit are dampening investment activity worldwide
and with it German export business," Kempf said.
At its event in Berlin, the BDI hosted Chancellor Angela
Merkel and World Trade Organization (WTO) Director-General
Roberto Azevedo, both of whom spoke out strongly in defence of a
trade system that Germany sees as threatened by U.S. policy.
Merkel told business leaders that the WTO was facing "huge
challenges", and criticised a U.S. decisison to block the
appointment of WTO judges: "If there are no new judges
appointed, of course, that's also an undermining (of the WTO)."
Azevedo said he was counting on Germany and the European
Union to support efforts to safeguard the rules-based free trade
order. "Of course, the system can be better, in fact it must be
better," Azevedo said, pointing to reform proposals to address
The German economy, with its export-oriented manufacturing
sector and an overall export quota of nearly 50 percent, faces a
threat from global business and trade uncertainty, Kempf said.
China is Germany's most important trading partner and the
United States is its biggest single export destination. An
escalating tit-for-tat tariffs dispute between Washington and
Beijing is therefore hitting German exporters as well.
"The United States and China must urgently de-escalate the
conflict," Kempf said, adding it was high time to strengthen the
WTO by modernising its rules framework.
The German growth outlook is also clouded by an impasse in
Britain's negotiations with its European Union partners over the
conditions of its departure from the bloc next March.
Kempf said there must be a breakthrough on getting a Brexit
deal in the coming weeks to ensure a transition period that
would give firms legal certainty until the end of 2020.
Britain still has to decide exactly what it wants out of
negotiations with the EU on Brexit, Merkel said. The
centre-right leader added that six to eight weeks of hard work
lie ahead to reach a possible deal in October.
(Additional reporting by Riham Alkousaa and Andreas Rinke
Editing by Maria Sheahan, Alison Williams and Peter Graff)
First Published: 2018-09-25 09:50:39
Updated 2018-09-25 13:03:36
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