Economic outlook increased by DIW Institute
A new assessment by the DIW Institute suggests that Germans will help revitalize the economy through their spending habits. DIW Chief Economist Geraldine Dany-Knedlik said, "Private consumption is expected to pick up speed."
Several factors are contributing to this optimistic outlook. Firstly, real incomes are on the rise due to decent wage hikes and increased transfer payments. Additionally, the labor market remains strong, and inflation is decreasing. As a result, buying power is growing. The DIW predicts a 0.3% increase in GDP for 2024 and a 1.3% expansion for the following year. Previous estimates included no growth this year and an increase of 1.2% for 2025.
Apart from private consumption, exports will also play a role in stimulating the economy. This is thanks to favorable conditions in the global market. Bundesbank President Jens Weidmann suggested that solid investments would only happen in the coming year. The European Football Championship might have an insignificant impact, potentially affecting tourism, the hospitality sector, or consumer goods makers.
Dany-Knedlik further explained that "We shouldn't expect an economic fairy tale during the summer" regarding the impact of the European Football Championship. Though the tournament could brighten people's moods and spending habits, there's a potential trade-off: fewer cultural tourists during this time due to an influx of football fans.
DIW President Marcel Fratzscher commented on the trade conflict between the EU and China over tariffs on Chinese electric car imports, stating that it has an immediate influence on Germany's economy. "There's no direct impact on Germany's output," he said. However, trade conflicts can still be a potential risk factor.
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The optimistic economic forecast by the DIW Institute is largely based on the anticipated increase in private consumption, with Chief Economist Geraldine Dany-Knedlik predicting a speedup in spending habits due to rising real incomes and increments in transfer payments. The revitalization of the economy through increased consumption is set to contribute significantly to Germany's projected GDP growth, with estimates showing a 0.3% increase in 2024 and a 1.3% expansion in 2025.
