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Leading German economic institutes cut 2016 growth forecast

Xinhua, April 14, 2016 Adjust font size:

Four leading German economic institutes cut their forecast for 2016 growth to 1.6 percent on Thursday, citing weak global recovery and urging the German government to spend more to stimulate growth.

In Autumn last year, the four institutes forecast Europe's biggest economy to expand by 1.8 percent in 2016. "The revision was entirely due to the marked cool down in the world economy at the end of 2015," said Timo Wollmershaeuser, an economist at Munich-based Ifo institute.

The other three think tanks who jointly released the forecast are DIW in Berlin, IWH in Halle and RWI in Essen.

"The German economy is experiencing a moderate upturn. Against a background of sustained employment growth, sizeable wage increases and purchasing power gains thanks to lower energy prices, private consumption is driving the upturn," they wrote in a statement.

Government spending on caring for and accommodating the large number of refugees will also provide additional impetus, according to economists. However, "no positive economic stimulus is expected from foreign trade," they added.

The economists said while residential construction investment would grow due to low interest rates, increasing incomes and the influx of refugees, corporations investment in equipment was only expected to grow sluggishly at first partly due to "a significant deterioration in business expectations" triggered by disappointing reports on the world economy.

In 2015, the German economy expanded by 1.7 percent, driven mainly by private consumption and government spending.

The institutes expected the economy to grow by 1.5 percent in 2017. Nevertheless, the German federal government would gain a budget surplus of 11 billion euros (12.4 billion U.S. dollars) this year and 10 billion euros(11.3 billion U.S. dollars) in 2017.

The economists urged the government to adjust its fiscal policy and exploit the surplus to stimulate growth.

"Failing to use this room for manoeuvre to promote growth, as seen in recent years, is not a sustainable path," they said. Endit