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Ifo cuts German economic growth forecast citing increased recession risk

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Ifo cuts German economic growth forecast citing increased recession risk

The ifo Institute cut its economic growth forecast for Germany through 2020 citing an increased risk of a recession and "high uncertainties" amid global political events.

The institute trimmed its growth estimate for 2019 to 0.5% from 0.6% estimated in March. It expects the economy to contract 0.1% in the third quarter, indicating a decline similar to that in the second quarter, but anticipates a "slight recovery" in the last quarter.

"This downturn was triggered by a series of world political events that call into question a global economic order that has grown over decades," said Timo Wollmershaeuser, head of forecasts at ifo. "The German economy is at risk of falling into recession. Like an oil slick, the weakness in [the] industry is gradually spreading to other sectors of the economy."

The German think tank expects the economy to expand 1.2% in 2020 on an unadjusted basis, down from previously estimated 1.7%, and 0.8% on a calendar-adjusted basis. It projects a 1.4% GDP expansion in 2021.

Unemployment numbers will increase to about 2.313 million in 2020 from 2.275 million in 2019 but employment will continue to grow gradually, ifo noted.

While the government financial surplus will shrink to €18.6 billion in 2021 from €45.8 billion in 2019, the current account surplus will expand to €265 billion from €245 billion over the same period, it added.

The outlook assumes an orderly Brexit and no further escalation of the U.S. trade war.

Earlier today, the Macroeconomic Policy Institute, an independent academic entity, said it sees a 59.4% chance of a downturn in the German economy over the next three months.