Germany’s DIHK Cuts Forecast as Domestic Demand Gets Hit

Germany’s DIHK industry and trade association cut its economic growth forecast for this year and said the economy will expand less in 2015 than the government predicts as domestic demand shows signs of weakening.

The DIHK today pared its 2014 growth outlook for Germany to 1.3 percent from 2 percent in May, and said it expects a slowdown to 0.8 percent in 2015 as European Union sanctions on Russia and crises such as the Ebola epidemic hit foreign trade and sales at home.

“The confidence at companies has received a significant damper,” the lobby group, which represents around 3.6 million companies, said in a statement. “Geopolitical worries not only leave their marks in business relations with crisis regions. Businesses are also more skeptical in their assessment of domestic demand -- it now tops the list of business risks.”

The DIHK report suggests pessimism is spreading to investments and consumer spending after Economy Minister Sigmar Gabriel on Oct. 14 said exports are “in extremely rough waters” because of international developments. Chancellor Angela Merkel’s government cut its 2015 growth forecast to 1.3 percent the same day.

Asked to name the biggest risks for their businesses over the next 12 months, DIHK’s respondents cited domestic demand, exports and government policy.

German Manufacturers

An “unusually” steep drop in confidence at makers of intermediate goods indicates a weakening of the economic cycle, the DIHK said. A separate monthly survey by the Munich-based Ifo economic institute showed that business expectations fell for a sixth straight month and more than economists expected.

Merkel’s promise to balance the federal budget next year depends on a robust domestic economy, tax forecasters have said. Income and sales-tax revenue will probably be strong enough to help reach that goal if the economy grows 1.3 percent as the government expects, the forecasters said.

The DIHK said its survey of more than 27,000 companies was conducted between the end of August and early October. Thirty percent of the companies polled were industrial companies, 6 percent were construction companies, 23 percent were in trade and 41 percent in services, it said.

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