Five Wise Men

Economists cut German growth forecast, urge tax relief for companies

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Sure, thanks, I'll read that tonight before I go to bed. Source: Reuters

Germany’s top economic advisory council reduced its forecast for growth this year and next, and urged the government provide tax relief for corporations to keep the country competitive.

The council, known colloquially as the Five Wise Men, cut its forecast for GDP growth this year to 1.6 percent from its previous 2.3 percent, and next year to 1.5 percent from 1.8 percent. The experts are more pessimistic than the government, which expects growth to reach 1.8 percent in both years.

The economists blame the delays in the auto industry in adapting to new emissions certifications for much of the reduction. They have had to stockpile vehicles and cut back on production. On top of trade tensions and other international setbacks, growth may be slightly negative in the third quarter, they said.

“And we can never get that back,” said Christoph Schmidt, head of the council, as he presented the group’s annual analysis in Berlin. “Production is already at capacity.”

Corporate tax cuts in the United States have made that country more attractive for investment, they said, and other European countries, such as France and Belgium, have already reacted.

Cabinet members know better

“The government must deal with this relatively quickly, before we get into big trouble again,” said Lars Feld, another one of the experts. Chancellor Angela Merkel said she would look closely at the tax issue.

But Finance Minister Olaf Scholz has already rejected one of the top recommendations from the council – to completely eliminate the solidary surtax that dates back to reunification. Scholz has said the coalition agreement calls only for eliminating 90 percent of the tax by 2021 and he would stick to that.

Economics Minister Peter Altmaier also took issue with the experts, who urged the government not to intervene in industry strategy and pick winners and losers. Altmaier believes the government needs to support battery cell development so that this important component of electric vehicles is not left to Asian producers.

The German economy has experienced its longest growth period in postwar history, but the prevailing view is that it will lose momentum soon.

“The air is getting thinner,” said Martin Wansleben, executive director of the German Chambers of Commerce. “The economic advisory council is right to call attention to the current risks to the country’s further development.”

The council is composed of economists from universities and research institutes. Besides Schmidt and Feld, current members are Peter Bofinger, Isabel Schnabel, and Volker Wieland.

Darrell Delamaide is a writer and editor for Handelsblatt Global based in Washington, DC. To contact the author: d.delamaide@extern.handelsblatt.com

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