Ifo forecast - Economic output in the East increases slightly in 2024
The Ifo Institute expects a moderate economic recovery for eastern Germany in the winter half-year. According to the forecast presented on Tuesday, economic output will increase slightly by 0.8 percent in 2024. "Things will improve next year," said Joachim Ragnitz, deputy head of the Ifo Dresden branch, on Monday. "However, the upturn will fall short of expectations from the summer, but at least it will be a recovery," the Ifo branch in Dresden announced. In Germany as a whole, the economic recovery will be slightly stronger at an annual average of 0.9 percent.
According to the information, the background to this development is a subdued mood in the East German economy in 2023 and the resulting lack of momentum among companies. "Inflation is likely to weaken significantly again in 2024, which, together with significantly higher wages, will lead to an increase in the real income of private households," said Ragnitz. This will lead to rising consumer demand, "from which consumer-related services in particular are likely to benefit". In the east, however, this development will be less pronounced due to the "unfavorable demographic development".
According to the Ifo assessment, economic output in the east will remain unchanged in 2023, while Germany as a whole will actually lose 0.3%. The weak construction industry in particular had an unfavorable impact due to high construction prices and uncertainty among potential builders, as Ifo expert Ragnitz explained. The sector will continue to dampen the economy in the coming year. After a decline of minus 2.1 percent this year, he predicts minus 3.6 percent for 2024. However, this will be offset in particular by consumer-related service providers such as retail, hospitality and transport. According to Ragnitz, these sectors are performing better than expected in the summer and are therefore supporting the economy.
"Economic development in the past year was disappointing," said Ragnitz. Despite a strong start, the local economy was unable to decouple itself from the dampening effects of the overall German economy over the course of the year. The fact that industry did not shrink even more was due to structural peculiarities such as the lower significance of the chemical industry, which was affected by a sharp decline in production, and the lower export propensity of eastern German companies.
However, positive growth impulses are reportedly coming from new production facilities, including in Brandenburg and Thuringia. However, these will come to an end in 2024 and the recovery in the industry will be weaker at 0.1 percent than in Germany as a whole, where experts expect 0.5 percent. According to the Ifo Institute, the consolidation measures announced as part of the agreement on the federal budget are likely to dampen growth again slightly, by up to 0.2 percentage points. However, according to Ragnitz, this will not change the picture outlined above. "We don't yet know what the specific savings plans will look like."
Press release with data
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- The Ifo Institute for Economic Research predicts a modest economic recovery for Saxony-Anhalt and Brandenburg, two states in eastern Germany, in the winter half-year of 2024.
- Joachim Ragnitz, the deputy head of the Ifo Dresden branch, anticipates a slight improvement in the economic situation in eastern Germany next year, although it will fall short of initial expectations.
- According to the forecast, economic output in Saxony will also increase slightly in 2024, while Thuringia, another eastern German state, may experience a less pronounced development due to demographic challenges.
- Ragnitz highlighted that inflation is expected to decrease significantly in 2024, leading to higher real income for private households and increased consumer demand, particularly for consumer-related services.
- Despite the expectations of economic recovery, the construction industry in Saxony-Anhalt will continue to pose challenges due to high construction prices and uncertainty among potential builders, resulting in negative growth for the sector in 2024.
- Positive growth impulses are reportedly being seen in Brandenburg and Thuringia, with new production facilities set to contribute to the economic performance of those states, although their impact will be less pronounced compared to the rest of Germany.
- The consolidation measures announced as part of the federal budget agreement could slightly dampen growth in Saxony-Anhalt, according to the ifo institute, although the overall outlook for the region's economic recovery remains positive.
Source: www.stern.de
