There are increasing signs that the German economy is slowly picking up again after the slump in 2023. Economic research institutes are somewhat more optimistic than they were in the spring.
According to economists, the German economy is gradually emerging from the economic downturn. Economic research institutes that published their latest forecasts were somewhat more optimistic than in the spring.
“There is light at the end of the economic tunnel,” said Moritz Schularick, President of the Kiel Institute for the World Economy. “There are increasing signs that the German economy can free itself from the recession.” Last year, Europe’s largest economy slipped into a recession with a 0.2 percent drop in gross domestic product. However, experts still do not believe that the German economy will make any major leaps this year.
The German economy is therefore likely to be supported primarily by a renewed increase in exports and a recovery in private consumption. Increased wages and lower inflation rates could boost people’s desire to consume.
Labor market largely robust
The Kiel Institute for the World Economy expects economic output to rise by 0.2 percent this year (spring forecast: 0.1 percent). However, there are no signs of strong economic momentum. Economic growth of 1.1 percent is expected for 2025 (spring forecast: 1.2 percent). The inflation rate is likely to settle at around 2 percent, after an average of 5.9 percent last year. The labor market is largely robust.
The RWI – Leibniz Institute for Economic Research in Essen is somewhat more optimistic, raising its growth forecast for 2024 from 0.3 to 0.4 percent. The economic recovery is likely to gain some momentum in the coming quarters, even if there is uncertainty about how energy prices and economic policy will develop, the experts wrote. An increase in economic output of 1.5 percent is expected next year.
Risks of punitive tariffs
The Halle Leibniz Institute for Economic Research (IWH) sees risks for the export-oriented German economy primarily in a possible race for tariffs. The EU Commission had threatened provisional punitive tariffs on electric cars from China. Beijing could respond with its own tariff increases. Companies in the automotive industry would be particularly affected, including by European tariffs on vehicles that German companies produce in China for the European market, explained IWH Vice President Oliver Holtemöller. Under such conditions, the chances of an expansion of German exports would be poor. In the current year, the IWH expects gross domestic product to increase by 0.3 percent (spring forecast: 0.2 percent). In the coming year, the institute continues to expect an increase of 1.5 percent.
Source: Stern
