Ifo institute cuts German 2019 GDP forecast, sees recession in third quarter

BERLIN (Reuters) - The Ifo institute on Thursday cut its 2019 growth forecast for Germany and said a recession would hit Europe’s largest economy in the third quarter, the latest gloomy forecast that raises pressure on the European Central Bank to loosen policy.

Ifo cut its growth forecast for this year to 0.5% from 0.6%. It also said the German economy would probably shrink by 0.1% in the third quarter, which would amount to a recession after a similar contraction in the April-June period.

“The outlook is weighed down by high uncertainties,” said Ifo’s Timo Wollmershaeuser, pointing to possible risks to the economy from a no-deal Brexit and an escalation of U.S. President Donald Trump’s trade wars.

The German economy has weakened as its export-dependent manufacturing sector languishes in recession due to trade conflicts and uncertainty linked to Britain’s planned departure from the European Union.

Ifo said the manufacturing sector’s weakness is gradually spreading to other parts of the economy, including logistics and the services sector. This was leaving a mark on the labour market, it said.

The institute expects a slight recovery in the fourth quarter. It said its forecasts were based on the assumption that there will be neither a no-deal Brexit nor an escalation Trump’s trade conflicts, which suggests even weaker growth in Germany should either of those eventualities materialise.

For 2020, Ifo cut its growth forecast to 1.2% from 1.7%.

Germany’s Macroeconomic Policy Institute (IMK) earlier on Thursday said there was an almost 60% chance that the German economy could fall into recession.

The Kiel Institute for the World Economy (IfW) on Wednesday slashed its growth forecasts due to trade disputes and Brexit uncertainty.

Reporting by Thomas Seythal; Writing by Joseph Nasr; Editing by Madeline Chambers