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UPDATE 1-German "wise men" hike growth f'cast, say Ukraine crisis a risk
March 20, 2014 / 5:10 PM / 4 years ago

UPDATE 1-German "wise men" hike growth f'cast, say Ukraine crisis a risk

(Adds details, quotes on Ukraine, background)

By Sarah Marsh

BERLIN, March 20 (Reuters) - Germany’s “wise men” council of economic advisers on Thursday hiked their forecast for 2014 growth in Europe’s largest economy to 1.9 percent from a November estimate of 1.6 percent on the back of a strong start to the year.

The panel, which advises the government on economic policy, said the biggest risk to global growth was the conflict in Ukraine. While Ukraine’s economy was of relatively little importance, Russia’s was, especially as a key energy exporter.

“The rise by 0.3 percentage points ... reflects what appears to be a better development at the start of the year as well as the further improvement in sentiment indicators,” the panel said in a statement.

The German economy, a growth locomotive in the early years of the euro crisis, slowed in the last two years as exports weakened and some firms delayed investments but the government expects it to grow by 1.8 percent this year - more than four times as strongly as in 2013 thanks to domestic demand.

Recent economic data has been upbeat with industrial output and orders and exports rising in January. Sentiment indicators paint a rosy picture of the economy, with consumers feeling their most positive in seven years and business morale rising.

“Positive growth stimulus will likely come above all from the domestic economy in 2014 - in addition to private consumption, equipment spending in particular will probably have a revival,” the so-called “wise men” said.

Foreign trade would likely contribute slightly to growth, the panel said. In its November forecast, it had expected trade to weigh on growth but it revised its estimate for exports up to a rise in 2014 of 5.5 percent from a gain of 5.2 percent.

If, however, Russia reacted to international sanctions by restricting deliveries, this would impact commodity prices and could result in gas and oil shortages in Europe, they said.

“The German economy would be especially impacted by this as more than 30 percent of its imports of oil and gas come from Russia,” they said, noting also that Russia accounted for 3.3 percent of German goods exports.

Another major risk was emerging markets, especially China, where growth was fuelled in past years by expansive monetary policy that was now being slowly tapered.

“A strong expansion of the volume of credit may have led to aberrations, especially in the real estate market. An abrupt correction would strongly weigh on China’s economic development and have a negative impact on the world economy.” (Additional reporting by Klaus Lauer; Editing by Noah Barkin and Stephen Brown)

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