The economy is still sluggish this year, but there are already signs of a turnaround. If the current Ifo forecast comes true, many things will improve in 2024: from growth to budget deficits.
There will be growth again next year: The Ifo Institute has slightly increased its economic forecast for Germany in 2024, as announced in Berlin. In the meantime, growth of 1.7 percent is expected for the coming year. That is 0.1 percentage points more than the forecast in December. And according to Munich economic researchers, the inflation rate will then normalize again at 2.2 percent. Expectations regarding the budget gap have also improved.
Expectations for the current year, on the other hand, still look gloomy: instead of growth, the Ifo expects a contraction of 0.1 percent, thus confirming its December forecast. However, the turning point should come in the course of the year: “After a further decline in gross domestic product by 0.2 percent in the first quarter, the economy will recover over the course of the year,” said Ifo economic researcher Timo Wollmershäuser. “By the middle of the year at the latest, rising real wages will support the domestic economy.” Overall, however, he still expects a drop in real wages for 2023 as a whole.
Ultimately, “we are all” losers in the crisis, said Wollmershäuser. Without them, Germany would be in a much better position today. Ifo President Clemens Fuest also commented in this direction. Prosperity is significantly lower than in 2019, he said.
Economic researchers: Inflation peak reached
In addition to noticeable collective wage increases, gradually falling inflation rates should also contribute to the trend reversal over the course of the year. “Inflation has peaked,” said Wollmershäuser. On average this year, he expects an inflation rate of 6.2 percent. This is minimally less than the December forecast. Wollmershäuser said he does not expect any further surges in inflation from energy prices in the coming months. At the end of the year, the fall in energy costs will also reach households and will even push down inflation next year.
The Ifo is more optimistic about the state budget than three months ago. It will be in the red in the current and next year with 1.3 and 0.3 percent of economic output, respectively. In December, the Munich forecast was still 2.6 and 1.2 percent deficit. Among other things, the economic researchers now expect expenditure on state energy price brakes to be reduced by 35 billion euros due to lower prices.
Source: Stern
