Subdued growth expected: The Ifo Institute is correcting its growth expectations for the German economy downwards. The DIW also updated its forecast.
The Ifo Institute has lowered its forecast for the German economy. After a decline of 0.3 percent in the current year, the Munich economists believe that gross domestic product will only grow by 0.9 percent in 2024 instead of the previously expected 1.4 percent.
The development in the current quarter is weaker than expected, and “that will also have an impact in the coming year,” said Ifo economics director Timo Wollmershäuser in Berlin.
Uncertainty delays recovery
Consumers are saving and companies are becoming less willing to invest, said the Ifo economics chief. The lack of clarity regarding the federal budget promoted this. With a cut of 20 billion euros, the economy would only grow by 0.7 percent.
The course is fundamentally set for recovery: wages rose sharply and employment was higher than ever before, said Wollmershäuser. Price increases are slowing and inflation is expected to fall from around six percent this year to a good two percent next year. The interest rate peaks have been exceeded. Purchasing power is returning and overall economic demand should increase again. The Ifo Institute expects economic growth of 1.3 percent for 2025.
Economic researchers expect unemployment to rise by 191,000 people this year and a further 82,000 next year. The unemployment rate would then rise to 5.9 percent. The number of employed people is expected to increase by 353,000 this year and by 83,000 next year.
No impetus from traffic light agreement according to DIW
Given consumers’ reluctance to spend, the German Institute for Economic Research (DIW) expects the German economy to recover significantly more slowly in the next two years than initially expected. The DIW is now forecasting economic growth of 0.6 percent for the coming year and growth of 1.0 percent for 2025. “This forecast takes into account that the federal government will make savings for the next two years and will not make all of the planned or promised expenditure,” said the institute in Berlin.
At the beginning of September, the DIW was still assuming growth of 1.2 percent in each of the next two years. Recently, however, “private consumption as an economic driver has largely failed, contrary to original expectations”. In view of uncertain times, consumers initially replenished depleted financial reserves instead of spending the money directly.
The DIW also does not expect any impetus from the agreement in the budget dispute. “A clear priority has been set against investments. This is likely to slow down economic development in the long term and endanger Germany’s competitiveness,” said DIW President Marcel Fratzscher.
The budget decision has already been taken into account in the DIW forecast. The actual agreement by the federal government was very close to the institute’s expectations, said DIW expert Geraldine Dany-Knedlik. According to DIW, the cuts and the uncertainty they have caused will likely reduce growth by 0.3 percentage points in 2024.
Source: Stern
