Germany's growth outlook slashed amid US-China trade war and Brexit
By Giles Gibson
The German economy has been facing headwinds due to a fall in exports and the US-China trade war. (Credit: VCG)

The German economy has been facing headwinds due to a fall in exports and the US-China trade war. (Credit: VCG)

A group of top German think tanks has slashed its growth forecasts as fears mount over the country's economy slipping into a technical recession later this year.

The institutions, including the DIW, or German Institute for Economic Research, forecast 0.5 percent growth this year and 1.1 percent in 2020. They have cut their figures significantly since their spring forecast, which predicted 0.8 percent growth in 2019 and 1.8 percent next year.

The lower figures follow falling demand for German exports around the world and the long-running US-China trade friction.

"Germany and the eurozone, we're suffering from the global trade war, from the uncertainty stemming from the global trade war, which is weighing on corporate expenditure and corporate investment. Of course, that also weighs on the Chinese economy, which leads to lower exports from Germany and the eurozone to China," said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

The report's authors also blamed their lower forecasts on the deep uncertainty over the UK's exit from the European Union.

"Risks arising from an escalation of the trade war are particularly high. But a disorderly Brexit would also have costs: it would cause German gross domestic product, taken by itself, to be 0.4 percent lower in the coming year than if there was an orderly exit," said Claus Michelsen, head of forecasting and economic policy at the DIW in Berlin.

UK Prime Minister Boris Johnson this week sent what he called a "constructive and reasonable" Brexit plan to the EU. However, leaders in Brussels said his plan still has problems as the clock ticks down to the UK's latest departure date of 31 October.

This week, German Chancellor Angela Merkel said Brexit was also one of the reasons behind the World Trade Organization's decision to lower its forecasts for global trade in 2019 and 2020.

"We've been negotiating an orderly British exit for three years. And that brings us great uncertainty when you consider that that exit should happen on 31 October. And people still don't know how supply chains will look," said Merkel.

The WTO drastically cut its forecast for global trade growth in 2019 from 2.6 percent in April to just 1.2 percent.