FRANKFURT (Reuters) - Germany’s central bank on Friday slashed its growth forecast for this year and said trade and political concerns had made the outlook for the country’s still booming economy more uncertain.
Weaker demand from abroad and labor shortages at home had exposed weaknesses at the heart of the export-oriented and industry-heavy economy, it said.
The Bundesbank expected growth of 2.0 percent this year, far lower than the 2.5 percent it forecast in December.
While it raised its 2019 estimate to 1.9 percent from 1.7 percent, Bundesbank’s president Jens Weidmann injected caution in an otherwise positive economic outlook.
“Uncertainties regarding the prospects for the German economy are considerably greater than they were,” Weidmann said in a statement.
Among factors weighing on sentiment, the Bundesbank cited worries over protectionism and “greater political uncertainty in some euro area countries” - references to a trade dispute with Washington and the formation of an anti-establishment government in Italy.
A model based on exporting industrial goods served Europe’s biggest economy well during a decade-long boom in China.
But it was starting to show its limits.
“The circumstance that German exports are heavily concentrated on capital goods and therefore likely to suffer from the continued shift in demand from investment to private consumption in China is likely to be a factor, amongst other
things,” the Bundesbank said.
“Exports to the euro area countries could be depressed by declining price competitiveness... because unit labor costs in Germany are rising faster than in other euro area countries.”
Eurosceptics from Italy’s League party, the junior partner in the new governing coalition, have often blamed what they described as Germany’s “mercantilism” for their own country’s problems, arguing Italy needed a weaker currency to compete.
But ministers in the new government have sought to reassure investors by reaffirming their loyalty to the single currency.
Reporting By Francesco Canepa; editing by John Stonestreet