German growth faces risks at home and abroad, economists say
Germany's economy faces risks on both a domestic and international level, according to prominent German economists, and there is little the country can do about a lot of them.
The latest ZEW Institute measure of economic sentiment among financial experts in Germany showed a sharp drop on that metric in October to a level of minus 24.7 points.
Germany's economy is expected to have seen weak growth in the third quarter largely due to concerns over international trade and a dip in car manufacturing
Germany's economy faces risks on both a domestic and international level, according to prominent German economists, and there is little the country can do about a lot of them.
"For me there are two risks," Achim Wambach, the president of Germany's influential ZEW research institute, told CNBC on Monday. "There are political risks – Brexit is not decided, and then we see Italy (and its populist government) which makes markets nervous -- and we see protectionism in the U.S. and China which, for Germany's export-orientated economy, would be a potential risk on the horizon."
"But then we also see homemade risks, in particular, in the automobile industry, " he told CNBC's Annette Weisbach at the German Economic Summit in Berlin.
The latest ZEW Institute measure of economic sentiment among financial experts in Germany showed what Wambach called a "severe" drop on that metric in October to a level of minus 24.7 points.
The indicator has thus reached the same low-point as in July of this year, being at its lowest reading since August 2012, ZEW said. The negative expectations were largely a result of the trade dispute between China and the U.S.
Germany's economy is expected to have seen weak growth in the third quarter largely due to concerns over international trade and a dip in car manufacturing, one of its major export industries, although the Bundesbank believes growth should rebound in the final three months of the year. The German government expects 2018 growth to be 1.8 percent, down from an initial 2.3 percent previously forecast.
Christoph Schmidt, an economist and president of the RWI Essen (the RWI-Leibniz Institute for Economic Research) told CNBC that the latest growth data was a temporary blip but that Germany faced longer-term risks.
"It's a unique quarter I think, the German economy will bounce back and we think it will grow according to potential, roughly 1.6 percent this year and 1.5 percent in 2019 so this temporary blip will be overcome but there's not enough potential to grow stronger than potential now so it will be a one-off loss," he said, speaking to CNBC's Annette Weisbach on Monday.
"But in an international environment, the trade conflicts, the upcoming Brexit (in March 2019), possible problems in the euro area (posed by Italy), these are elements of the international environment that are disturbing and disconcerting in the domestic realm."
Building trust
Economists voiced their concerns over the country's economy at an economic summit hosted by German newspaper Suddeutsche Zeitung . Now in its twelth year, the three-day congress holds discussions on the latest political, commercial and economic events facing the world. The motto of this year's gathering is "Building Trust," a timely theme given a rise in populism in Germany and throughout Europe.
The region has seen many voters turn away from traditional political parties towards anti-establishment movements, often with controversial policies on immigration (such as those promoted by the Alternative for Germany party) and economics (such as those from Italy's populist coalition government, made up of the right-wing Lega party and 5 Star Movement, that is currently the subject of dispute with the European Commission).
Germany itself is in disarray on the political front with Chancellor Angela Merkel's coalition government, which has been dogged by policy disagreements and infighting since its troubled inception in March, looking increasingly fragile.
Merkel has said she will not stand for the party leadership in December and said she would not stand for election again after 2021. Meanwhile, there are rumors that Horst Seehofer, the head of her conservative partner, the Christian Social Union (CSU), could step down from the party after poor performances in recent regional elections. The Social Democratic Party's place within the coalition is also looking tenuous with voters appearing to punish it for not remaining in opposition.
Asked whether politicians in Germany were hearing the "wake-up call" from voters and whether there could even be a sudden election in Germany ahead of the scheduled one for 2021, ZEW's Wambach was neutral.
"We see instability in the political system and there is a debate over how long the government will stay together. (But) those people who are in charge at the moment, they don't benefit from any new elections," he said.
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