OECD slashes growth forecasts for Germany, France

The Organization for Economic Cooperation and Development (OECD) on Wednesday trimmed its economic growth forecasts for Germany and France.

The Paris-based economic body, which advises industrialized nations on policy matters, now expects the German economy to grow by 0.7% next year, down from a previous forecast of 1.1%.

France also saw a cut of 0.3 percentage points in its projected growth, with the OECD now estimating the French economy to expand by 0.9%.

What did OECD say about the German economy?

Germany and France, the top two EU economies, have been struggling with a raft of challenges over the past year, including political infighting, high energy prices, lagging investment and weakening demand in key foreign markets.

Germany's three-party ruling coalition collapsed last month due to disagreements over how to deal with the country's severe economic malaise.

Snap elections are slated for February.

Europe's biggest economy will lag the eurozone average of 1.3% for 2024 and 1.5% in 2025.

Low inflation and rising wages, however, will support real incomes and private consumption, the OECD said.

"Private investment will gradually pick up, supported by high corporate savings and slowly declining interest rates, but policy uncertainty will continue to weigh on investor confidence," it said.

France's political crisis weighs on growth

In France, Prime Minister Michel Barnier's minority government faces being brought down by a no-confidence motion in parliament on Wednesday after it forced through an unpopular budget bill in an attempt to cut the country's high budget deficit.

The deficit-reduction plan initially presented by Barnier contained tax increases and spending cuts worth €60 billion ($63.1 billion), aimed at bringing the deficit to 5% of economic output in 2025 from an estimated 6.1% this year. The aim is to trim the deficit down to 3% by 2029.

It was seen as an attempt to steer the French economy into calmer waters. 

But if lawmakers vote to oust Barnier's government, it could throw the country into political turmoil.

The OECD expects France's economy to expand just 0.9% in 2025 and 1% in 2026.

What are the risks facing global economy?

The organization also warned on Wednesday about growing threat of trade protectionism worldwide.

It said increasing barriers to commerce could disrupt the global economy.

The warning comes just weeks before US President-elect Donald Trump is set to return to the White House. Trump has already vowed to impose tariffs on a number of trade partners.

The OECD warned "greater trade protectionism, particularly from the largest economies" poses a "downside risk" to global growth, even though it raised the 2025 forecast for the entire world economy to 3.3%, an increase of 0.1 percentage points.

"Increases in trade-restrictive measures could raise costs and prices, deter investment, weaken innovation and ultimately lower growth," the OECD underlined.

A recent study by the Roland Berger consultancy calculated the cost of the US measures and likely countermeasures by China and the EU at more than $2.1 trillion through 2029.

sri/rc (Reuters, AFP)