The outlook for 2015 has brightened up considerably of late and a renewed upswing is likely to get under way. External factors are providing a massive boost to the German economy. Since mid-2014 the oil price has halved in euro terms. In addition, the effective exchange rate of the euro has fallen by more than 5% since the spring of 2014, enhancing exporters’ price competitiveness. Should these positive factors remain in place at least for a while – as we are assuming – both these effects together are likely to lift economic growth by almost one percentage point over the course of 2015 and by around half a percentage point on average over the year. We are raising our forecast for German GDP growth 2015 up from 1.6% to 2.0%. Our forecast to date had already factored in positive oil price and exchange rate effects to a limited extent.
Consumption is likely to benefit in particular from the slide in the oil price. We expect real private consumption to grow by 2.3% in 2015, the strongest increase since 2011.
Despite the rosy economic outlook, there are no grounds for euphoria. The positive external factors fail to alter the subdued medium-term growth outlook for the German economy in view of the low investment level. Given capacity constraints investment activity will perk up in 2015, but the investment splurge Germany so sorely needs is not in sight. On the economic policy front little has been done in recent years to make Germany more attractive as an investment location. The measures undertaken by the Grand Coalition – minimum wage, early retirement, rent curbs – along with rising fees and various property tax hikes at the federal state level are exerting a drag, but this will be more than offset by the extremely positive external tailwinds. The economic backdrop is good and, together with an economic policy geared to investment, offers opportunities for sustained growth in Germany.