German growth to continue amid rising downside risks: official report

BERLIN, April 19 (Xinhua) -- Germany's economic boom is set to continue but faces increasing downside risks from capacity bottlenecks and international trade conflicts, an official forecast showed on Thursday.

The so-called "spring forecast" was presented to the federal government on an annual basis and showcased the joint views of experts in leading economic think-tanks.

According to the latest forecast, German gross domestic product (GDP) will increase by 2.2 percent in 2018 and 2.0 percent in 2019, higher than an earlier estimate of 2.0 percent and 1.8 percent respectively.

However, Timo Wollmershaeuser, economic expert at the Ifo Institute for Economic Research, warned that the air was already "getting thinner" for firms in trying to keep up with demand.

Wollmershaeuser noted that the available capacities which could still be mobilized in the German economy were declining rapidly. Furthermore, a recent global trade conflict unleashed by U.S. President Donald Trump constituted an exogenous risk which threatened to undermine growth in the country's highly-export oriented industries.

On a more positive note, the researchers emphasized that further GDP increases would be felt broadly among workers in Germany. They predicted that wages would rise by 3 percent on average, well ahead of inflation at 1.9 percent in 2018.

As a consequence, purchasing power will grow again and in turn support broader economic expansion. Unemployment is anticipated to fall even further from current record low, creating a growing need for firms to lure employees with additional benefits beyond basic remuneration.

According to the experts, key manifesto pledges of the new "grand coalition" government are likely to provide an additional boost to private household finances. The forecast cautioned Berlin against fiscal overspending in this context, urging policymakers to commit to a sustainable budget policy in light of a generally favorable macroeconomic climate.

The researchers also urged the government to reduce hurdles to immigration of highly-skilled labor in Germany. Companies were increasingly struggling to fill vacant positions, especially in the construction and service sector.

In spite of a tight labor market, the spring forecast did not perceive an excessive risk of the economy "overheating" in the next two years. Roland Doehrn of the Essen-based RWI institute highlighted that inflation was only rising moderately and there were no signs of a credit bubble forming at the moment. Enditem