The economy in Germany is weakening. Economists are harshly critical of the federal government’s policies – the traffic light coalition should create less uncertainty.
Germany in a downturn: The leading economic research institutes have significantly reduced their economic forecast for this year. They expect gross domestic product to shrink by 0.6 percent. In the spring, the institutes had assumed a mini-growth of 0.3 percent. An overview of the reasons for this – and why economists criticize the federal government’s policies.
Economy is shrinking
The most important reason for the forecast reduction is that industry and private consumption have recovered more slowly than the institutes had expected in the spring, said Oliver Holtemöller from the Leibniz Institute for Economic Research Halle in Berlin. According to the institutes’ “joint diagnosis”, this has to do, for example, with the weak global economy, which is putting a strain on companies with strong exports. In addition, production in energy-intensive economic sectors such as the chemical industry has declined – the economy has been demanding relief for a long time due to the high electricity prices compared to international standards.
According to the institutes, there has not yet been a significant recovery in private consumption. Increasing wage dynamics are supporting the purchasing power of households. However, many people are still unsure about what will happen next because of the persistently high inflation and are holding back on making major investments.
On the price front, however, the situation is gradually easing. According to the forecast, the inflation rate is expected to be 6.1 percent this year and fall to 2.6 percent next year. Inflation weakened in September. Consumer prices were 4.5 percent higher than in the same month last year – after 6.1 percent in August, as the Federal Statistical Office announced.
For the coming year, economic researchers lowered their growth forecast by 0.2 percentage points to 1.3 percent. There will be no high growth rates in the following years either – the reason: Due to demographic developments, the number of employed people is shrinking.
Federal Economics Minister Robert Habeck (Greens) will present a new economic forecast in mid-October. The federal government is also likely to lower its expectations. In the spring, the federal government had expected an increase in gross domestic product of 0.4 percent. The autumn forecast is also the basis for the new tax estimate in November.
Stable situation on the labor market
According to the institutes, the economic weakness has now also reached the labor market. In view of the “notorious” and likely to worsen personnel shortages in many areas, the institutes only expect a moderate increase in unemployment to 2.6 million people this year. The number of unemployed will probably fall slightly in the next two years.
Memoir for the federal government
The institutes criticize that the federal government’s policies have “massively unsettled” companies and households. This makes economic planning more difficult and contributes to the economy not emerging from the downturn quickly. Torsten Schmidt from the RWI Institute Essen said that it was to be welcomed that the federal government had courageously tackled climate policy. But: “In our view, the measures are the wrong ones.” He referred to the long conflicts in the coalition over the heating law and spoke of a “small-scale” approach. “The level of uncertainty among the population in Germany is still very high and this is of course dampening consumption and investments.”
The institutes believe that the coalition’s planned “Growth Opportunities Act” with billions in relief for companies will not have much of an impact.
The CDU economic politician Julia Klöckner called the economic situation in Germany worrying. A comprehensive and quickly effective pact for growth and prosperity is needed. Left parliamentary group leader Dietmar Bartsch spoke of a “traffic light crash”. Bartsch said that the recession was the result of the federal government’s often desolate policies.
Institutes reject industrial electricity prices
The coalition has been struggling for weeks about relief for companies when it comes to energy prices. The Greens and the SPD parliamentary group are in favor of state-subsidized industrial electricity prices, Chancellor Olaf Scholz (SPD) is skeptical, the FDP is against it.
The institutes reject an industrial electricity price. Stefan Kooths from the Kiel Institute for the World Economy said: “We have a shortage problem, which is expressed in the prices and which cannot be solved by providing new subsidies for some consumers here.”
Holtemöller said that it will probably continue to be the case in the foreseeable future that electricity from renewable energies can be produced cheaper elsewhere than in Germany. “In this respect, it will probably be unavoidable in the long term that certain energy-intensive production will be relocated from Germany. But that is not the end of the world because other activities can be developed accordingly.” This structural change must be promoted, especially for the employees affected.
The institutes criticized the fact that there was no coherent overall concept in energy policy. They recommend abolishing the electricity tax and a simultaneous shortage of CO2 certificates – to provide incentives to save electricity.
Source: Stern
