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Roundup: German economists raise growth forecast, but worry about Brexit

Xinhua, June 17, 2016 Adjust font size:

German economists said their country's economy in this year would grow faster than they initially thought, but a possible withdraw of UK from the European Union would risk the economy's future momentum.

On Friday, RWI economic institute in Essen raised its forecast for German 2016 growth from 1.4 percent to 1.7 percent, citing strong private consumption, residential investment and government spending.

"Domestic demand remains the driving force of the German economic growth," said RWI chief economist Roland Doehrn in a statement.

According to the institute, employment would continue to rise and the German government was expected to spend more on accommodating and integrating refugees.

RWI joined other leading economic think tanks in Germany which predicted the German economy to grow at a faster pace. Earlier this week, Berlin-based DIW and Munich-based Ifo institute also raised their growth forecast slightly.

"The first quarter of 2016 was better than expected. The moderate upturn in the German economy that started in 2014 is entering the second half. It may even run into extra time," said Ifo economist Timo Wollmershaeuser.

In the first quarter of 2016, the German gross domestic product (GDP) increased by 0.7 percent, more than twice the growth in the last quarter of 2015. Industrial production rose by 1.8 percent quarter on quarter. Sentiment of consumers and business both remained brightened.

The German government also expect the economy to grow by 1.7 percent in the current year.

However, many economists warned that the German economy would suffer significant loss if Britain chooses to leave the EU in a referendum next week.

"The biggest risk at the moment is Brexit," said Ifo President Clemens Fuest on Thursday. According to Ifo's analysis, Brexit would cost the German economy up to 3 percent of GDP in the long term.

Great Britain was Germany's fifth biggest trading partner in 2015 with a total foreign trade volume of 127.5 billion euros (about 143.5 billion U.S. dollars).

"If the British people choose to leave the EU, that will cost the German economy in this year already," said DIW's chief economist Ferdinand Fichtner.

According to the institute, Brexit will cost German exports about 15 billion euros in 2017, while other indirect effects, such as financial market turmoil, declining foreign investment and rising tariffs, are difficult to estimate. Endit