From the second half of the year, real incomes are likely to rise again for the first time in three years, the DIW expects. The institute warns against overly restrictive financial policies.
The German Institute for Economic Research (DIW) assumes that people in Germany consumed more again this quarter. “We think that private consumption is recovering – but tentatively,” said DIW expert Geraldine Dany-Knedlik on Thursday. The slowdown in inflation has helped to reduce uncertainty. “We are now also seeing the first collective wage agreements with strong rates, such as in the public sector.”
According to DIW expectations, real incomes are likely to rise again from the second half of the year for the first time in three years. This would mean that people would have more money at their disposal, even after deducting the price increases. Private consumption had previously collapsed. As a result, the German economy shrank slightly in the first quarter, said Dany-Knedlik.
The DIW now assumes that economic output will decline by a total of 0.2 percent this year. The forthcoming recovery will not be able to compensate for the losses from the first few months. For the coming year, the DIW expects “solid growth thanks to rising real wages” of 1.5 percent. “Especially in 2024, private consumption will play a key role in economic recovery,” the institute said.
DIW President Marcel Fratzscher warned against overly restrictive financial policies. “Fiscal policy must be careful not to become a permanent brake on the German economy and the necessary economic and ecological transformation,” he said. “The federal government should be able to comply with the debt brake without spending cuts, also because the inflation, which is still high compared to previous years, will lead to significant additional tax revenue.”
Source: Stern
