Germany Country Risk Report Q4 2018
We are relatively optimistic about the German economy in 2018-2019, particularly in light of the recent acceleration in economic growth.
The rebalancing of the German economy towards greater levels of domestic consumption has been far slower than we initially expected.
The government will remain committed to a very conservative fiscal stance and will continue to push for this at the eurozone level as well.
German politics is entering a period of heightened instability, as the result of the September 24 federal election makes a three-party coalition the most likely outcome, with a Christian Democrat-Free Democrat-Green coalition likely to endure significant policy disagreements.
A strong result for the anti-immigrant Alternative for Germany highlights the major schisms created by the migrant crisis in Germany, with the country previously having eschewed nationalist parties entirely.
Strong revenue growth, containment of expenditure and low interest rates will continue to contribute to a lower general government debt load over time. There is increasing scope to commit more funds to growth-boosting infrastructure investments, but the window for such a policy shift may be closing.
Rising euroscepticism and political instability may spark a crisis in a weaker member state such as Italy, which would have negative implications on regional growth.
Headwinds posed by Brexit may prove more severe than anticipated, weighing in particular on Germany's crucial export sector.
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