High energy prices, too few skilled workers, high interest rates: the German economy is burdened by several factors. There is no quick recovery in sight for Ifo boss Clemens Fuest.
According to the President of the Ifo Institute, Clemens Fuest, the labor shortage and the energy transition will have a long-term impact on economic growth. “In Germany, growth will be weaker in the future,” Fuest told the financial news agency dpa-AFX in Frankfurt.
He pointed to demographic developments that are leading to a shrinking supply of workers. In addition, the energy transition is likely to have a negative impact on economic development, which is underestimated by politicians. “The shortage of electricity supply in Germany was a mistake,” said Fuest. Among other things, the last German nuclear power plants went offline in the spring.
Recently, companies in the chemical industry warned against relocating parts of their production abroad due to high energy costs. “The migration plans of companies in the chemical industry must be taken seriously,” said Fuest. Providing more energy could help improve the situation.
According to Fuest, the shortage of skilled workers is the biggest burden
However, Fuest rejects an electricity price brake. “I expect electricity prices in Germany to remain permanently higher than in other countries,” said Fuest. The costs of an electricity price cap would be a long-term burden. Rather, what is needed is a fundamental solution in the form of an electricity market organization in which electricity is expensive when there is a shortage of supply and cheap when there is sufficient supply.
The economist sees the greatest burden as the lack of workers in many areas of the economy. “The labor shortage will continue to slow growth in the coming years,” said Fuest.
According to Fuest, progress could be achieved through the Skilled Immigration Act. In addition, childcare needs to be improved, which can be achieved through better pay. In general, Fuest expects improvements if the tax and transfer system makes it more attractive to accept full-time positions instead of part-time ones.
Inflation likely to ease
According to Fuest, another economic burden is the still high inflation in the euro zone. Nevertheless, the European Central Bank (ECB) is unlikely to raise key interest rates any further. “After all, the economic prospects for the eurozone are not that great,” said Fuest. In addition, a number of indicators would point to a weakening of inflation. Rather, he expects the ECB to be able to keep its interest rates at the current level for a longer period of time.
“The higher interest rates are particularly painful for Germany because the economy here is developing particularly poorly,” said Fuest. “The ECB makes monetary policy for the eurozone as a whole.”
Fuest points to a possible sudden increase in energy prices. “There is also a risk that the ECB will keep interest rates too high for too long after initially underestimating inflation,” said the Ifo boss. After the significant increases, it will be difficult to avoid a recession in the eurozone.