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German government's independent economic advisers fret about growth and ECB policy

German government's independent economic advisers fret about growth and ECB policy
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The German government’s independent panel of economic advisers is at odds with its employers.

It is forecasting growth of just 1.0 percent in 2015, undercutting officials predictions of 1.3 percent. It linked that to “geopolitical risks” such as the Ukraine crisis and weak eurozone growth.

The experts also complained government policies like a lower retirement age and minimum wage are hitting growth.

Chancellor Angela Merkel has rejected such criticism, instead blaming international crises for Germany’s economic slowdown.

As it cut its GDP forecast for 2014 to 1.2 percent, from its previous prediction in March of 1.9 percent, the panel repeated its recommendation that the Berlin government should introduce more investment and innovation-friendly policies.

The head of the panel Christoph Schmidt said Germany started 2014 with a strong economy, but is currently facing stagnation, however he added the country does have a robust labour market and consumer market.

ECB balance sheet concerns

The independent economic advisers criticised the European Central Bank’s asset-buying programme and urged it to avoid a major increase in its balance sheet until clearer signs of deflation emerged.

The ECB’s cut to the benchmark interest rate to combat falling inflation and its asset-buying programme carried dangers for the eurozone economy, the panel warned, joining other senior German figures who are sceptical about ECB policy.

“On the one hand the financial sector is led into taking greater risks because of low interest rates, and on the other hand, due to the bond buying, the ECB could encourage governments to ease off on reform and consolidation efforts.”

The report added that the ECB should “avoid a massive expansion of its balance sheet, so long as deflation is neither in evidence in the euro zone, nor forecast”.

The ECB is facing critical choices about whether to buy sovereign bonds to combat falling inflation and economic stagnation – a taboo in Germany.

with Reuters

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