Ifo Economic Forecast 2016/2017: Upturn in Germany Enters Second Half

The robust upturn seen in the German economy since 2014 will continue. The Ifo Institute expects real gross domestic product to grow by 1.8% this year and by 1.6% in 2017. This would further reduce the output gap, which will almost close next year. Since the overall pace of the economy is moderate, however, there are no signs of overheating in the domestic goods and factor markets. Buoyant domestic demand is a key driver of growth. Private consumption expenditure is rising against a background of more favourable developments in employment and higher transfer income. Prolonged, favourable financing conditions are also providing positive stimuli for investment in equipment and construction. In addition, the continuing migration of refugees is also boosting demand for residential construction. No noteworthy impetus is expected to come from international trade over the forecasting period, in which exports and imports will grow at a similar pace. Within the context of positive overall economic developments, the positive basic trend in the German employment market will continue, although the dynamic may not remain quite as strong as in recent months.