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German central bank cuts GDP forecasts through 2020 amid slowing domestic demand

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German central bank cuts GDP forecasts through 2020 amid slowing domestic demand

Germany's central bank cut its forecasts for the country's economic expansion through 2020, citing weaker domestic demand caused by slower growth in employment and households' real disposable income.

Deutsche Bundesbank now projects Germany's calendar-adjusted GDP to increase 0.5% in 2019, down from a June projection of 0.6% growth. For 2020, the growth outlook was slashed to 0.6% from 1.2%.

Growth is expected to climb to 1.4% in 2021 and 2022, the central bank said.

Germany logged a GDP growth rate of 0.1% in the three months to September, narrowly avoiding a technical recession after its second-quarter GDP contracted by 0.2% in quarterly terms. A technical recession is defined as two consecutive quarters of economic contraction.

Bundesbank expects the economic slowdown to persist through the fourth quarter of 2019 and the first quarter of 2020, projecting a "very subdued" increase in GDP.

"However, as things currently stand, there is no reason to expect that Germany will slide into recession," the bank said. "On the contrary, the first tentative signs that industry is gradually picking up are emerging."

Germany posted the largest year-over-year decline in industrial production compared to other EU member states at 6.3% in October. In November, Germany's business sentiment improved, with companies less pessimistic about the outlook despite lingering concerns in the manufacturing sector.

Germany continued to weigh on overall activity in the eurozone in November as the country's manufacturing Purchasing Managers' Index remained in contraction with a reading of 44.1, compared with 42.1 in October.