Germany Cuts Growth Forecasts, Cites Chinese Slowdown As Main Reason

In some negative news for the German economy, the German government trimmed its growth forecast for this year citing weakness in China and other major emerging economies. Economy Minister Sigmar Gabriel said today that Berlin now expects the German economy to grow by 1.7 percent which is lower than the 1.8 percent estimate it had earlier predicted. The downward revision is being seen as a huge negative by traders and investors on the street. The Economy minister said that the emission rigging scandal at Volkswagen has no “enduring effect” on current economic forecasts and the government has already taken into account the likely effect on tax income from the company.

It is imperative to state that Germany continues to remain the growth engine for the Eurozone economies and a slowdown in the economy would hurt the fragile growth recovery across the Eurozone. It is imperative to state that the economic reports coming out of the German economy over the last few weeks is indicative of the negative impact the slowdown in China is having on its economy. It was reported today that the German PMI collapsed and came in below most analyst estimates which is being seen as a huge negative.

Many economists on the street believe that the European Central Bank would be forced to increase the size of its easing program in the coming months in order to provide the impetus to the Eurozone economies which continue to get hurt on the back of the sharp slowdown in the Chinese economy and other emerging market economies. The German DAX ended the day lower for the third straight trading session which is being seen as a huge negative by traders and investors. Traders would be watching the release of retail sales report from the Chinese economy in the coming days.