Inflation has dampened the buying mood among consumers. This is reflected in the macroeconomic forecasts – but there is also confidence.
According to experts, consumer restraint at the beginning of the year will result in a slight decline in German economic output for the year as a whole. The German Institute for Economic Research assumes that the economy will shrink by 0.2 percent. The recovery that has already begun will no longer fully compensate for the losses, the DIW announced on Thursday. The Kiel research institute IfW expects a minus of 0.3 percent for this year and thus lowered its spring forecast (plus 0.5 percent). The Essen-based economic research institute RWI also expects a drop of 0.3 percent.
At the same time, all three institutes assume that the economy will grow again in 2024. The DIW expects growth of 1.5 percent, the IfW 1.8 percent and the RWI 2.0 percent. The IfW and the RWI thus adjusted their forecasts upwards.
“We think that private consumption is recovering – but tentatively,” said DIW expert Geraldine Dany-Knedlik. 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 declined significantly. As a result, the economy shrank slightly in the first quarter, said Dany-Knedlik.
Inflation rate of 2.1 percent expected
The RWI also attributes the weak overall economic demand to private households. Due to the inflation at the beginning of the year and the associated fall in real income, they reduced their consumption. “As the year progresses, household consumer spending is likely to rise again as inflation falls.” Overall, inflation will be 5.5 percent this year and will fall to 2.0 percent next year.
The IfW expects an inflation rate of 2.1 percent for 2024. In view of the crisis and the halt in the supply of oil and gas from Russia, the German economy is doing well, confirming its ability to adapt quickly to new circumstances, commented Institute President Moritz Schularick. IfW economic chief Stefan Kooths said the outlook was better than the negative annual rate would suggest.
Source: Stern
