German companies are surprisingly upbeat about their business outlook despite potential fallout from the U.K.'s decision to leave the European Union and rising protectionism under U.S. President Donald Trump, according to a survey published Monday.
The poll in March and April of nearly 2,700 German companies by the business-funded IW economic institute showed that nearly half of them expect their output to grow this year while 40% want to hire new staff.
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"These results are astounding given the high level of political uncertainty caused by the U.K.'s forthcoming exit from the EU and the protectionist intentions in the Trump administration," the institute said.
So far, these two risk factors haven't had an impact in Germany and its economic upswing started in 2013 will continue in the near-term, IW predicted.
The think tank raised its German economic growth forecast to 1.5% from the 1% it previously expected for this year, adding that the slowdown from last year's 1.9% growth was because there are fewer working days this year. It expects the economy to grow by 1.75% in 2018. The figures are in line with the German government's outlook of 1.5% growth for this year and 1.6% for 2018.
But risks remain.
Last year the U.K. was Germany's second-biggest export market after France. Its car industry has warned that it could be particularly affected by Britain leaving the European single market and by the potential introduction of trade tariffs between both countries.
Future U.S. trade policy is also a risk factor.
"The U.S. government's protectionist tendencies could impact economic interactions--the trade with consumer and intermediate goods, cross-border business financing and the mobility of skilled workers--and damage the global economy's growth," warned IW Director Michael Huther.
Mr. Trump has expressed his opposition to a trans-Atlantic free-trade zone with the EU. German companies had hoped that a Transatlantic Trade and Investment Partnership pact, known as TTIP, would make trade between the EU and the U.S. easier.
Germany's traditionally strong export sector had weighed on the economy last year but 31% of the companies polled now expect exports to be higher than in 2016, up from one-in-four during the last poll in autumn last year. The IW forecasts export growth will be 3% in 2017 and 2018 compared with 2.6% in 2016.
The poll showed that 46% of German businesses expect their overall output to rise this year, while only 10% forecast it would fall.
IW expects employment to rise by 580,000, or 1.3%, this year from 2016. This should help to push Germans' economic worries to their lowest level since the early 1990, when the reunification of West and East Germany resulted in a surge in unemployment, IW said.
IW said the German economy's main growth driver will remain private and state consumption but it warned that higher inflation and oil prices could push up the government's debt-servicing costs.
"The time of high budget surpluses will likely be over once the low-interest phase ends," said Mr. Huther. "Governments have to be prepared for this."
Germany had a budget surplus of 0.8% of gross domestic product last year and IW forecasts it will narrow to 0.5% this year and in 2018.
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(END) Dow Jones Newswires
May 08, 2017 04:44 ET (08:44 GMT)