German economic advisors raise growth forecast, warn of increased risks

BERLIN (Reuters) - The panel of economic advisers to the German government slightly raised its growth forecast for Europe’s largest economy on Wednesday but warned that a spiral of protectionist measures could damage the robust upswing.

The five economists who advise the German government on policy said they expected gross domestic product to grow by 2.3% this year, up 0.1%age points from their previous forecast in November.

For 2019, they forecast 1.8% economic growth.

The Ifo economic institute was even more optimistic, with its researchers confirming their forecasts — originally made in December — of 2.6% German growth this year and 2.1% in 2019.

“Huge income tax reductions in the USA and the robust economic upturn in the euro zone are boosting demand for German goods and services,” Ifo said on Wednesday.

The panel of economic advisors said trade would play a slightly bigger role as a growth driver than previously expected due to a booming world economy. The European Central Bank’s loose monetary policy and the government’s plans to increase state spending will provide additional stimulus, they added.

But the advisors also warned that the German economy was facing increased risks from abroad, including the Italian election result, uncertainty regarding the outcome of negotiations on Britain’s looming departure from the European Union and planned U.S. import tariffs.

“A spiral of protectionist measures would have a clear negative impact on the global economy and the German economy,” they said.

On the domestic front, German companies are facing increased capacity constraints and labor shortages are likely to limit future growth, the panel said.