Europe's Locomotive

Warning Signs on the Horizon for Germany’s Economy as Growth Slows

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A worker at a construction site in downtown Berlin.
  • Why it matters

    Why it matters

    Despite some positive economic signs, the outlook for economic growth in Germany is relatively poor.

  • Facts

    Facts

    • Economists are revising their growth forecasts for 2014 downward, as industrial production has declined.
    • Small business owners are cutting back on investment, according to a survey obtained by Handelsblatt.
    • Slow growth in the first two quarters is likely to weigh down overall results for the year.
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    Audio

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The German economy is actually in relatively decent shape. Gross domestic product, or GDP,  is expected to have increased by three quarters of a percent in the first half of the year. Consumer confidence is at record high levels and the labor market is relatively stable, with a seasonally adjusted 57,000 fewer people out of work in late July than at the beginning of the year.

Thanks to abundant tax revenues, the government is making do without new debt. In the first half of 2014, German federal and state tax revenues increased by 2.5 percent over the same period last year, despite €2 billion ($2.7 billion) in fuel-rod tax reimbursements to nuclear-power producers.

Still, there are growing concerns about the German economy. Government economists have been tight-lipped. No one is willing to discuss crisis scenarios, and bank economists are starting to back away from their economic forecasts. Deutsche Bank, for instance, only expects to see 1.5 percent growth for the entire year, despite a strong start in the first quarter.

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