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German govt sees no let-up in economic growth

© AFP | German Economy Minister Peter Altmaier offered up a bullish picture in pointing to strong exports, "massive" investments by companies and strong domestic demand

FRANKFURT AM MAIN (AFP) - 

The German economy ministry on Wednesday published an optimistic set of forecasts for 2018-19, saying strong growth into next year will help create a million new jobs.

Government economists slightly downgraded their growth expectations for 2018 to 2.3 percent from 2.4 percent.

But "the German business cycle remains spirited and the upturn is continuing" against the background of "brisk global growth," Economy Minister Peter Altmaier said, pointing to strong exports, "massive" investments by companies and strong domestic demand.

The ministry offered a bullish figure for 2019, predicting expansion of 2.1 percent.

Berlin's first forecast for next year is much brighter than the Bundesbank (central bank), which in December predicted 1.7 percent growth for 2019, or the government's Council of Economic Advisors, which expects 1.8 percent.

Altmaier added that by the end of 2019, Europe's largest economy would make "important strides on the path to full employment", as pledged by Chancellor Angela Merkel during last year's election campaign.

He predicted that around one million jobs would be created, driving unemployment to new all-time lows, while workers should enjoy fatter pay packets.

Early signs of higher pay have come as metalworkers wrung out a juicy deal from employers earlier this year, encouraging civil servants' present battle for better salaries.

Wednesday's outlook did not take into account the effect of a possible trade war between Europe and the United States.

If a deal is not reached with President Donald Trump, European Union countries' exemptions from tariffs on metal imports will expire on May 1 -- potentially triggering a spiral of tit-for-tat retaliation that could sap economic growth.

"We still think that tariffs are neither correct nor justified in this case," Altmaier said.

"Neither our citizens nor our economy will profit from protectionism."

- Skilled workers hard to find -

One factor that could help fend off protectionist threats is growing prosperity at home.

Lower unemployment and better pay for workers should help reduce Germany's massive export surplus by increasing demand for goods from abroad.

Germany's overshoot of exports over imports grates with trade partners in Europe and the United States, who say Berlin is not doing enough to help their economies by stoking German domestic demand.

By 2019, the economy ministry expects the surplus to fall to around 7.5 percent of gross domestic product (GDP) from around 9.0 percent last year, as employment and wages rise and government spending increases under Merkel's new coalition.

But Altmaier warned future growth is at risk if Germany does not find a way to plug gaps in the supply of skilled workers that are braking some companies' growth, set to worsen as the "baby boomer" generation quits the labour force.

"One in two firms report they are unable to fill posts long-term," the German Chambers of Commerce and Industry (DIHK) said, threatening production shortfalls and undermining their ability to take on new contracts.

Meanwhile, inflation should reach 1.8 percent this year and 2.0 percent in 2019, more or less in line with the European Central Bank's target of just below 2.0 percent for the 19-nation eurozone as a whole.

© 2018 AFP