GERMAN ECONOMIC LOCOMOTIVE IS SLOWING DOWN

Germany's leading economic institutes (Munich-based Ifo, the DIW in Berlin, the RWI in Essen as well as Halle's IHW)  have cut their growth forecast amid a slump in European demand and a series of global crises. They slashed their 2014 growth estimate for Germany down to 1.3 percent and predicted the German gross domestic product (GDP) in 2015 would reach 1.2 percent, which is also significantly lower than their previous estimate of 2 percent.

The German economy is stagnating, and there's no indication for the moment that this will change before the end of the year. Germany, which relies heavily on its industrial sector and high-value exports, is suffering from weak demand for its goods from the rest of Europe and China, where growth is also slowing. It is also getting hit by fears over the potential economic impact of the sanctions on Russia triggered by the crisis in Ukraine.

The four think tanks are also skeptical about the stimulating effects of the European Central Bank's (ECB's). Instead they point out governments in Europe must do more to boost growth and create the right conditions for investment. Germany's zero-deficit policy, which includes caps on spending and investment, mustn't be seen as an end in itself from an economic point of view they argue.

Recommendations

1. Increase public spending in areas that have the potential to boost growth, such as investment in infrastructure.
2. Angela Merkel mentioned the digital economy and the energy sector, as two possible areas of higher government spending, and vowed to reduce bureaucracy in general.