German economic growth likely to slow considerably in 2017, weakness in trade to weigh further

Economic growth in Germany is expected to show a slowdown in 2017, following considerable momentum over the last two years. While the economy will likely have to do without a number of special factors that provided a boost to domestic demand in 2016, the underlying robust domestic economic growth path remains intact. Weak global trade and political uncertainty will dampen exports and investments.

While the global economic momentum is expected to pick up somewhat in 2017, Germany’s growth rate will almost half, to 1.1 percent, in 2017, but around half of this is due to a smaller number of working days. Also, export growth is likely to remain muted, due to the weak European economy, where the outlook is dampened by political uncertainty, lower credit growth and rising inflation, Deutsche Bank Research reported.

The geopolitical environment is characterized by considerable uncertainty in 2017. Donald Trump’s election promises have increased concerns about the future of free trade. The rise of populism and upcoming elections in major EU countries complicate further the EU’s myriad challenges, such as the Brexit negotiations, the refugee issue and the creation of more robust institutions and structures.

Employment growth is likely to slow in 2017, also as a result of the pronounced shortage of skilled workers. In an environment also characterized by normalizing inflation, which could climb from ½-1 ½ percent on the back of rising energy prices; real income growth is likely to slow slightly.

However, the construction industry is expected to report solid growth of 2 percent, although this comes as a disappointment given the considerable order backlog and favorable financing environment. Construction activity is likely to be hindered by the limited supply of labor and regulatory hurdles.

Meanwhile, EUR/USD traded at 1.04, up 0.12 percent, while at 8:00GMT, the FxWirePro's Hourly Euro Strength Index remained slightly bullish at 90.92 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex